This is a transcribed excerpt from the “Bitcoin Magazine Podcast”, hosted by P and Q. In this episode, they are joined by Brandon Green to talk about how the European debt crisis is bullish for bitcoin.
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Brandon Green: Yes, there are other things. There are other questions I can think of. Another would be, as you start to watch politicians become more and more involved in space, one thing that’s going to be fascinating is like who, who are our real quote-unquote friends, right?
It’s easy to get out there and support Bitcoin. It grows and explodes and you, the politician, can see the dollar signs by pointing it out publicly. It’s another thing when we’re in a bear market and it’s not sexy, and it’s not even popular to talk about it right now. Will they still come out and defend it?
I do not know. My gut probably tells me no. I think you might have [Cynthia] Lummis, maybe there are a few others who actually love, care about bitcoin, but I’d say for the most part they’re just there to get more votes and figure out how to cooperate with our movement. I think this is going to be another interesting thread.
The most important thing I pay attention to specifically for Bitcoin is resolving the macroeconomic crisis we have thrown ourselves into. And that’s something I was talking about a while ago on the Twitter space. You have a scenario right now where the EU is about to dissolve.
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 thrown there. They are all relative importers, as if they were importing more than they were exporting. They are heavily in debt.
Often these are the countries that were 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 happened was that the European Central Bank said, “Okay, we’re just going to buy the debt of all these southern European countries and essentially become a safety net.
They continued to do so. The ECB defends the countries of the south of the EU and it is good – it was good – because the EU was a net exporter. And so because of that, you always had a demand for the currency coming from overseas. With the whole gas crisis in Russia, where Germany and other countries have been cut off from Russian gas, their energy costs have gone up so much that they’ve actually wiped out their net exports. Today, even Germany, and all these other countries are now also net importers, which has caused the demand for the euro to fall.
You saw the euro reach parity with the dollar earlier. You are actually looking at a scenario where the euro weakens itself. 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 a question of protecting the whole of the EU and preventing it from dissolving.
There’s what’s starting to form these perverse incentives where if they want to protect the euro, that means increasing [interest rates]. But if they raise rates and stop buying debt from southern countries, that would protect the value of the euro. By doing this you raise rates, you stop printing money.
Then you end up in a scenario where no one is buying the nations debt from PIGS. And then they default on their debts, and if the PIGS countries default on their debt – again, it’s Portugal, Italy, Greece and Spain – you have a problem where they have to rename in their own currency so they can actually print their way and inflate their way to get by.
It’s their only choice and it’s starting to happen. The ECB raised rates by 25 basis points last week. At the same time, you saw Super Mario [Draghi] resign as Prime Minister of Italy. You see some of the machinations of that happening right now.
It is very important to pay attention to this. The alternative would be the countries of the North; you have Scandinavia plus Germany, which was the economic powerhouse – I’ll explain why this all matters with bitcoin – but you have the economic powerhouses which have been these net exporters who see inflation in the system. And they say, wow, okay. We don’t want to keep printing all that money. We need to step up our efforts so we don’t all see this runaway inflation, to support the PIGS nations. If inflation isn’t curbed, if government spending isn’t stopped, then the countries in the north will all elect their own populous leaders, the same way the UK did a Brexit and you’ll see the Germany and some of these northern countries come out of the EU at the other end.
The reason I’m interested in Bitcoin is that there aren’t many solutions for Europe. If this happens, you will see huge amounts of currency, basically minted and printed overnight. Many people will not return to this system of redenominating their debts to a new currency.
It’s also backed by nothing, right? These currencies have to be derived from something and so Bitcoin is a huge answer for that. If that doesn’t happen, the only alternative is for someone like the US to step in and essentially control the yield curve for the EU. It is not our mandate. I can tell you that.
And that’s going to cause us to start printing even more money than we imagine printing for COVID. If we have to support the whole of the EU with our Federal Reserve.
P: And what would that look like? What do you mean when you say EU yield curve control?.
Green: Let me go back. What is yield curve control? Yield curve control is essentially your attempt to control the interest rates on a bond. And by doing that, you’re actually putting the bond payment below the rate of inflation. So anybody who buys bonds is like, “Okay, I don’t want to own this bond. I am losing money in real terms. Then they sell it. If you’re selling bonds, you need a buyer. If no one buys, then rates start to rise and that drives up the debt. So what the EU usually does is they step in and support it and they say, ‘Okay, we’re just going to buy all the bonds at this price level and basically control the yield curve, control yield on it.”
They can’t do that anymore. Because they’ve printed too much money and there’s inflation and all that stuff. The only person who might really be able to do anything about it is [Jerome] Powell and the US Federal Reserve. If the United States did that, then you would see a massive dollar print and you would enter the same basic macroeconomic set that took us from 2009 to today, and you saw what bitcoin did.
So this is the other case of bitcoin, as in both cases it is incredibly bullish for bitcoin price. It’s just that it comes at the expense of stability in a place like Europe.