In this era of credit bankruptcy

Author: Liu Jiaolian

The country is broken, but the mountains and rivers remain. The city is covered with grass and trees in spring. The flowers shed tears when they feel the time, and the birds are startled when they feel the separation.

As if it is a symptom before the halving, BTC (Bitcoin) continues to retreat, breaking through 60,000 dollars overnight. This is an opportunity for the hoarders who add positions when the market falls to add positions at a discount. From 73,000 to 61,000, it is a 15% discount. Some people say that if it can fall to 50,000, that is 30% off, which is really cool.

Look at the end of 2024, the lower track is 35,000 dollars, the middle track is 100,000 dollars, and the upper track is 370,000 dollars. So, the probability of 40,000 is very small, the probability of 50,000 is not high, and 60,000, well, it is the current position.

Why is the probability of 40,000 very small? Why can't it be like the 2019-2020 round, with a small high point in the middle of the bear market and then a deep dive?

Because of the "breathing theory" (refer to the article "[Ten Years' Agreement #13] Bitcoin is Breathing" on the teaching chain on December 6, 2023). This time BTC has been below the surface of the middle track for too long. It is estimated that it does not have the strength to dive down now. (Refer to the article "BTC may not have a long-term decline basis at this stage" on the teaching chain on March 16, 2024)

Of course, as a scientific theory, the breathing theory can also be falsified. Like any scientific theory, it is only valid before and when it is not falsified.

After Yellen returned from her second survey, Powell said in a speech, "Given the strength of the labor market and progress in inflation so far, it is appropriate to give restrictive policies more time to work and let the data and changing prospects guide us." (Refer to the 3.17 Teaching Chain Internal Reference "Bernstein said that the bullish trajectory will be restored after the halving")

Scare people like this, it seems that the carrot surrender has failed again, so they have to wave the stick again.

But if you hold the stick for a long time, on the one hand, it is inevitable that your arms and waist will ache, and on the other hand, if you accidentally drop the stick held high, you may hurt your feet.

Why do Powell and the Federal Reserve keep a close eye on the price inflation rate? Moreover, why is the target of 2%?

On the one hand, the number of 2% is still relatively scientific. Because according to research, the long-term average productivity growth rate of the entire world is about 2%.

From the second aspect, as long as the terminal inflation is controlled at 2% through monetary policy (such as interest rates, QE/QT and other tools), the money printing machine at the source end can print as much as it wants. The constraint of US debt on the issuance of US dollars is only formal, and in fact, it can always break through the restrictions.

The over-issued US dollars flowed into the non-productive sector, pushing up the price of financial assets. The fact that asset returns far outperform labor returns is a strong proof of this fact.

Currency is a distributor. The total social wealth is 100. When one group of people and another group of people each have 50 currency, each of them owns 50% of the wealth; when a group of people gets the over-issued 50, the currency in their hands becomes 100, and the wealth distribution changes. One group of people owns 2/3, and the other group of people only owns 1/3.

Productivity progress means that now I can produce 100 steamed buns a day, and next year I can produce 102 steamed buns a day. For people who buy steamed buns, if the currency does not increase, 1 currency buys 1 steamed bun today, and 1 currency can buy 1.02 steamed buns next year. Because there are only 100 currencies used to consume steamed buns, the more steamed buns are produced, the cheaper each steamed bun is. This is the fall in value caused by productivity progress. Whether it is today's AI or the textile industry in the middle of the last century, they cannot escape this basic law of economy.

The paradox is that productivity progress is a good thing for people and society, because it can produce more use value (such as steamed buns), but for capitalists, productivity progress is a bad thing, because more investment cannot bring higher returns. Therefore, as a capitalist, Buffett learned from his mistakes and decisively sold Berkshire's textile business, and fully transformed to only invest in businesses with monopoly attributes and slow productivity progress (such as Coca-Cola).

You think it's wrong? The book says that the capitalists' pursuit of productivity progress has led to today's rapid development of science and technology. You've been deceived here. The book is based on capitalist ideology, so it naturally describes the result as the cause and the ugly as beautiful. First of all, productivity is the cause, and production relations are the result. As for social division of labor, roles and classes, they are the products of production relations. Secondly, capitalists are forced to pursue productivity progress. What forced them? Free competition.

Taking monopoly and progress as two dimensions, industries (investment targets) can be divided into four categories: 1) Low monopoly, fast productivity progress, this is an emerging industry, such as new energy vehicles; 2) High monopoly, fast productivity progress, this is a key industry, such as mobile communications, rocket launches; 3) Low monopoly, slow productivity progress, this is a mature industry, such as the catering industry; 4) High monopoly, slow productivity progress, this is a monopoly industry, such as tobacco and Coca-Cola.

Famous venture capitalist Peter Thiel advocates looking for investment opportunities that stand out from the first category and become the second category. For this purpose, he wrote a book called "From 0 to 1". Old money Buffett advocates investing in the fourth category of opportunities. Peter Thiel's idea is too beautiful. Buffett is more pragmatic. But they all agree to avoid the third category.

BTC is dualistic, or contradictory: Bitcoin mining belongs to the first category: competition is extremely free and full, eliminating all excess profits; computing power evolves at the speed of Moore's Law, which is not inferior to any technology industry. But Bitcoin itself belongs to the fourth category: it has a high degree of natural monopoly, its mental model is becoming more and more solid, and it is becoming more and more difficult to be subverted; the production speed is halved every 4 years, and soon the increment will be negligible, and no matter how hard you try, you can't produce a little more. In other words, BTC has the lowest monopoly and the highest monopoly at the same time, and the productivity progresses the fastest and the productivity progresses the slowest at the same time.

Capitalism is only pursuing making more money, not producing more steamed buns. If 102 steamed buns are produced next year, and the price of each steamed bun falls to 0.98 currency, then the capitalists will go crazy. This is the "deflation" that economists use to scare people. So Keynes jumped out and patched it up: as long as we let more money come out of the market, 102 steamed buns, 102 currencies, then it is still 1 currency to buy 1 steamed bun, consumers don't spend more money, and steamed bun merchants steam and sell more steamed buns and make more money.

But I'm sorry, steamed buns do not belong to the industry of productivity progress. Consumers' appetite will not increase year by year. So next year there will still be 100 steamed buns, but corresponding to 102 currencies, so the price of each steamed bun will rise to 1.02 currencies, which will form price inflation. Consumers spend more money, and steamed bun merchants don't steam and sell more steamed buns, but they make more money.

The question is, what if we do not allow the use of any over-issued currency? If we use BTC to measure the value of steamed buns, then this year's sale of 100 steamed buns can be exchanged for 1 BTC, and next year's sale of the same 100 steamed buns may only be exchanged for 0.98 BTC. But so what? Mr. Wang, who makes steamed buns, will not be troubled by only being able to exchange for 0.98 BTC next year, as long as the amount of other goods that these 0.98 BTC can be exchanged for is not less than or even more than the amount that 1 BTC can be exchanged for this year.

People are absolutely not afraid of deflation. They are most afraid of deflation only when there are financial intermediaries in this economic cycle.

When there is deflation, capitalists will lay off employees. When there is deflation, trusts will burst. When there is deflation, the U.S. debt and dollar system will collapse.

To put it bluntly, finance itself is not productive. But it is empty, focusing only on the growth of value, not the production of use value. So if it wants to pretend to be productive, it can only disguise itself with the growth of numbers.

If US Treasury Secretary Yellen sells you $1 million in US debt today, she must pay interest every year so that $1 million can become $1.02 million or even $1.05 million next year. Otherwise, no one will buy her US debt. When faced with numbers, no one will think that $1 can only buy one steamed bun this year, but it can buy 1.02 steamed buns next year, so we can accept that $1 million is lent to Yellen this year, and she only needs to pay back $1 million next year.

Behind financial behavior is credit. Credit will go bankrupt sooner or later.

Capitalists recruit employees based on the future development of the enterprise. Once the development of the enterprise is hindered, they will lay off employees on a large scale. Trusts promise returns and attract investment based on the forecast of future growth of underlying assets. Once the underlying assets go bankrupt, they will not be able to repay investors. U.S. debt is even more naked and rigidly promises future yields. Although it can be printed on paper that the dollar can be redeemed, if the future growth of the U.S. national strength is not enough to support the value of the dollar, it will be a book payment and a substantial default.

Credit is a promise of future value.

BTC is not credit - future value. BTC never promises future value. BTC is just cash - present value. So the title of Satoshi Nakamoto's Bitcoin white paper says that BTC is "electronic cash" rather than "electronic credit".

In this era of credit bankruptcy, things that are not credit and will not go bankrupt are more worthy of our trust.