This is a transcribed excerpt from the “Bitcoin Magazine Podcast” hosted by P and Q. In this episode, Brandon Green joins them to talk about how the European debt crisis is bullish for Bitcoin.
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Brandon Green: Yeah, there are other things. There are other issues on my mind. Another would be, as you start to look at the politicians that are more and more involved in the space, one thing that’s going to be fascinating is who, who are our real friends, quote, unquote, right?
It’s easy to get out and support Bitcoin. It’s growing and exploding and you, the politician, can see the dollar signs publicly signaling that. Another thing is when we’re in a bear market and it’s not a sexy thing and it’s not even popular to talk about right now. Will they still come out and protect him?
I do not know. My gut tells me probably not. I think maybe you have [Cynthia] Lummis, maybe there are a few others who like, actually care about Bitcoin, but I’d say for the most part they’re just there to get more votes and figure out how to co-op our movement. I think this will be another interesting topic.
The biggest thing I’m paying attention to specifically about Bitcoin is the resolution of the macroeconomic crisis we’ve thrown ourselves into. And this is something I talked about a little while ago in the Twitter space. Right now you have a scenario where the EU is teetering on breaking up.
There is no other way to play it. You really have two factions. You have the “PIGS” countries: Portugal, Italy, Greece and Spain, Ireland is sometimes added in there. They are all relative importers, as if they import more than they export. They are very much in debt.
Many times these are the countries that were practically bailed out by Super Mario Draghi after the great financial crisis of 2008. If you hadn’t done that, it looked like the EU might have collapsed then. And what ended up happening is that the European Central Bank said, “Okay, we’re just going to buy the debt of all these southern European countries and effectively become a backstop.”
They continued to do this. The ECB stands up for the southern countries of the EU and that is good – it was good – because the EU was a net exporter. And because of that you still had demand for currency coming in from abroad. With the whole Russian gas crisis where Germany and other countries were cut off from Russian gas, their energy costs went up so much that they basically wiped out their net exports. Now even Germany and all these other countries are also net importers, which has caused demand for the euro to drop.
You saw the euro hit parity with the dollar earlier. You are actually looking at a scenario where the euro itself weakens. The problem with the ECB is that it really only has one mandate, which is to maintain the stability of the euro. It is not about protecting the entire EU and preventing its collapse.
That starts to form these perverse incentives where if they’re going to protect the euro, that means going up [interest rates]. But if they raise interest rates and stop buying debt from southern countries, that will protect the value of the euro. By doing that, you raise interest rates, you stop printing money.
Then you end up with a scenario where nobody buys the debt of the PIGS nations. And at that point they default on their debts and if the PIGS nations default – again, that’s Portugal, Italy, Greece and Spain – you run into a problem where they have to redo in their own currency, so they actually can to stamp their way and puff their way out of it.
It’s their only choice, and it’s starting to happen. The ECB actually raised rates by 25 basis points last week. At the same time you saw Super Mario [Draghi] resigns as Prime Minister of Italy. You see some of the machinations of that happening right now.
This is very important to pay attention to. The alternative would be the northern countries; you have Scandinavia plus Germany, which was the economic powerhouse—I’ll explain why all of this matters with Bitcoin—but you have the economic powerhouses, which were these net exporters that are seeing inflation in the system. And they say, wow, okay. We don’t want to keep printing all this money. We need to tighten up so we don’t all see this rampant inflation to prop up the PIGS nations. If inflation is not out of line, if government spending is not stopped, then all the northern countries will elect their own populist leaders, similar to how the UK left the EU and you will see Germany and some of these northern countries leave EU on the other side.
The reason this is interesting to me for Bitcoin is that there aren’t many solutions for Europe. If this happens, you will see massive amounts of currency basically being minted and printed overnight. Many people will not go back to this system of redenominating their debts into a new currency.
That’s not backed up by anything either, is it? These currencies have to be derived from something and so Bitcoin is a huge answer to that. If that doesn’t happen, the only alternative is for someone like the US to step in and basically control the yield curve for the EU. This is not our mandate. I can tell you that.
And that will cause us to start printing even more money than we imagine printing for COVID. If we have to support the entire EU with our federal reserve.
P: And what will that look like? What do you mean by EU yield curve control?.
Green: Let me back up. What is yield curve control? Yield curve control is basically your attempt to control interest rates on a bond. And by doing that, you’re actually putting the bond payout below the rate of inflation. So anyone who buys bonds says, “Okay, I don’t want to hold this bond. I’m losing money in real terms.” Then they sell it. If you’re selling bonds, you need a buyer. If no one buys, interest rates start to rise and that leads to higher debt. So what the EU usually does is they come in and support it and say, “Okay, we’re just going to buy all the bonds at that price level and basically control the yield curve, control the yield on it.”
They can’t do that anymore. Because they printed too much money and there is inflation and all that kind of stuff. The only person who might really be able to do something about it is [Jerome] Powell and the US Federal Reserve. If the US did that, then you would just see massive dollar printing and fall into the same basic macroeconomic set that got us from 2009 to today, which you saw what Bitcoin did.
So that’s the other case of bitcoin, however you slice it, is incredibly bullish for the price of bitcoin. It’s just that it’s at the expense of stability in somewhere like Europe.