Listen to the episode here:
“Fed Watch” is a macro podcast with a true and rebellious bitcoin nature. Each episode we challenge traditional narratives and Bitcoin by examining current events in macro across the globe with a focus on central banks and currencies.
In this episode, I’m joined by Q and Chris Alaimo from Bitcoin Magazine’s livestreaming team to talk about the “recession” vs. “not a recession” vs. “depression” debate. I also immerse myself in understanding the temporary effects of government fiscal spending and the brick wall facing the global economy, demonstrated by yield curves. We end with a Q and Ansel (question and answer) from the guys and the community.
You can find the slideshow for this episode here.
Debate on the recession
In recent days, many people have started noticing that the National Bureau of Economic Research (NBER) has changed the definition of what constitutes a recession. Outrage at this blatant sleight of hand has reached fever pitch. The common sentiment is, “How dare they change the definition to save the reputation of an unpopular president?”
Few people realize that the definition had already changed in 2020 with the COVID-19 recession. It was the shortest recession on record, lasting only from March to April 2020. The definition changed to be more subjective to narrow down what a recession is and place one on the record of the previous president. Now, this more subjective measure is being used to expand the definition to keep a recession off this president’s record.
Once again, the danger of letting political interests control supposedly neutral data and science is starkly obvious.
Leading us into a discussion of the American consumer and the weak economy, I read a passage from a Walmart financial releasewhich is significant as they are by far the largest retailer in the world.
“Operating profit for the second quarter and full year is expected to decline 13-14% and 11-13%, respectively.”
Lance Roberts has collected some excellent graphics to refute the new party line of the apparatchiks: that there is no recession. First, deficit spending. On the podcast, I used this graph to show how budget spending isn’t printing money, it’s just pushing demand forward. If it is not supported, there is a gaping hole of demand behind it.
We can see the economy rushing towards this gaping hole in the yield curves. The first chart below goes all the way back to the 1981-82 recession, showing many selected yield curves. Notice the steady cascade into reversal (negative on the chart) that typically characterizes the march into recession. However, this chart shows an almost immediate dive into the reversal as if hitting a brick wall.
Below is an enlarged graphic that we reviewed on the podcast. I have selected a few yield curves for 10-year and 5-year Treasury bills. Again, the steep nature of the current crash is like hitting a brick wall.
At this point in the podcast, I felt like I was being a bit of an alarmist, and I just wrote a blog post condemning “fear scammers and alarmist pimps”, so I used the following chart by Jeff Snider, in which he shows we have not returned to previous growth trends and the possible outcomes of this recession. I expect the outcome of this US recession to be generally mild, similar to the dot-com type recession.
Behind all this controversy over the word “recession”, we find ourselves with the realization that it doesn’t matter anyway. We are going to have a slight slowdown and return to the post-global financial crisis normal of low growth and low inflation.
Bitcoin, the dollar and rate hikes
Next, we talk about bitcoin and rate hikes. I think it’s very interesting that when the June 2022 Federal Open Market Committee (FOMC) policy announcement of a 75 basis point hike, bitcoin was around the same level as today.
To be exact, as of 2 p.m. ET on June 15, 2022, the price of bitcoin was $21,505. As I wrote this at 11 a.m. ET on July 27, 2022, the price was $21,440. It is very interesting to note that despite the negative news surrounding bitcoin and the ferocity of the Federal Reserve, the price of bitcoin remains extremely strong.
The last image this week was the Chicago Mercantile Exchange’s FedWatch tool (which took the name of our podcast!). At the time of recording, it showed a 75% chance of a 75bps hike and a 25% chance of a 100bps hike.
That’s it for this week. Thank you readers and listeners. Don’t forget to check out the Chain Fed Watch Clips on Youtube. If you like this content, subscribe, review and share!
This is a guest post by Ansel Lindner. The opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc. or Bitcoin Magazine.