This is an opinion editorial by Tom Luongo, a former research chemist and financial/political commentator specializing in the intersection of geopolitics, financial markets, gold and cryptocurrencies.
The Federal Reserve is on the attack, but not against inflation. Oh, they say their shift in monetary policy is about inflation, but that’s a cover story for what’s really going on. There is a titanic fight for the future of not just money, but for humanity itself, and the Fed is in one corner of the ring.
outside money” group of safe-haven assets: gold, silver, bitcoin.
If you are familiar with my work, you’ll know the answer to who that target is. If you aren’t, keep reading, and keep an open mind.
For now, bitcoin is caught in the middle.
The world is all a-Twitter (literally) over the Fed’s recent move to raise rates by 75 basis points (or 0.75%) across the board. I wasn’t. In fact, I’d suspected for a while that Powell wanted to go “75” but couldn’t politically.
which I’ve written about previously.
reverse repo crisis of September 2019 was a direct result of U.S. banks, particularly JP Morgan Chase, refusing to accept European debt as collateral, creating a dollar liquidity event which saw SOFR blow out to over 10% as banks scrambled for scarce dollars, which the Fed had to provide by opening its repo facility back up.
I’m not sure if this was the end of the “coordinated central bank” standard, but September 2019 is definitely a candidate for monetary historians to discuss. Then Powell was forced — via our first flirtation with Modern Monetary Theory (MMT) with the CARES Act — to abandon his hawkishness during COVID in 2020.
comments that the central banks would all now have to coordinate policy to combat climate change.
Powell publicly dissented in June of 2021, just two weeks before he would begin stealthily tightening by raising the payout rate on reverse repo (RRP) contracts by 0.05% or 5 bps.
Powell insisted “we are not, and we do not seek to be, climate policy makers as such. We have a very specific mandate, and precious independence … which has served the public well…that’s not up to us … but nonetheless I do think our work can indirectly educate the public and also I would think inform other parts of the government in the actions they are assigned to assess.”
interview with former Fed insider Danielle Dimartino Booth is worth your 20 minutes to get a sense of what’s really going on. She intimated (because she can’t say the quiet parts out loud) that the Fed is raising rates for reasons other than “fighting inflation.”
I identified Powell’s use of the RRP facility to drain overseas markets nearly immediately and began forming the core thesis around which this article and a lot of my other commentary is based:
The ECB’s emergency meeting the day of the Fed’s rate announcement left the markets seriously underwhelmed.
We have no idea how long it will take for this period of monetary history to work itself out, but the pace of events is accelerating.
Today, the Fed is on the attack to save itself from its enemies. It has shored up its defenses, built a war chest of assets and is now deploying financial weapons of mass destruction.
everyone else’s valuations are based on it, including bitcoin’s. If the Fed decides to shrink its balance sheet, it can and will collapse all the others. Powell is betting the farm on this, while simultaneously understanding that to get rid of inflation and restore sustainable economic growth, it first means liquidating all the uneconomic projects and overpriced assets.
It means relinking global liquidity and the value of money with the real costs associated with building real wealth. I don’t think Bitcoin fears the Fed because Bitcoin is just code. Bitcoiners, on the other hand, who are tied to the price and not just stacking sats, need to realize the immense power that the Fed still has, and when faced with an existential threat to its future, the lengths it will go to preserve itself and those banks whose interests it represents.
Once you accept this, only then can you see the immense opportunity in front of you to make the right decisions at the right times and navigate your way through this pivotal period of history.
This is a guest post by Tom Luongo. Opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc. or Bitcoin Magazine.