What if Feder Chairman Jerome Powell (Jerome Powell ) wins the inflation war?
After the Federal Reserve once again raised interest rates by , the current leader was used to compare with Paul Volcker (Paul Volcker). Volcker once opposed the opposition and led the Federal Reserve to introduce radical monetary tightening policies in the early 1980s, pushing inflation to a sustained low level at the cost of two consecutive recessions. This has brought a decades-long boom to the United States and is called "big stable"
So can Powell, who is increasingly hawkish, achieve similar success?
The success of Bitcoin depends largely on whether people have confidence in the current legal system and the monetary policy since the US dollar was decoupled from gold in 1973 and the central bank governor. The idea of
believes that if people lose confidence in central bank , the currency will shake, intensify inflationary pressures and prompt users to turn to alternatives such as gold or Bitcoin.
To be fair, Bitcoin is also under major tests given the recent sluggish cryptocurrency market. But what we are focusing on here is Powell. Can he replicate Volker's success?
reality is much more complicated.
As we discussed two weeks ago, the US dollar's status as the primary reserve currency has given the United States unique monetary policy freedom and has had an impact in other countries.
In the years after the 2008 financial crisis, the Federal Reserve's highly loose monetary policy pushed " hot money " to developing economies, making policy making there more difficult.
Now the US dollar is recovering, and hot money is fleeing back to the United States, forcing central banks around the world to follow the Federal Reserve's currency tightening policy to protect their own currencies. Now not only the United States but also China, but Japan's exchange rate is also falling sharply!
Warning of various risks!
The war-driven commodity price increase, inefficient supply chains, and deep-rooted, self-realization expectations may continue to support this. In this environment, what will the Federal Reserve led by Powell do? Will it be more radical and then push the U.S. economy into a deeper abyss?
My bet is "no", the political risk is too great. Once American companies go bankrupt on a large scale and a large number of Americans are unemployed, the pressure to soften the monetary environment again will become too great. When this happens, as low-cost funds are pushed into the world again in search of risky assets, Bitcoin will be one of the targets of these flows.
But the bigger and longer-term question is not whether the Fed will be involved in this wash-up reaction, but how Powell's bold new position will have an impact on his reputation over time on his and other central bank governors.
If he succeeds in cooling down over speculation and opening up another predictable era of moderate inflation, Powell could provide a shot in the entire fiat system and its dollar-based center in the coming years, which would make it difficult for Bitcoin (or gold, for that matter) to find another way.
A lot of things depend on this. For Bitcoin, it is not enough to just say that the US dollar gradually loses its purchasing power due to inflation , and what most people want is predictability. Investors are not worried that the 2% annual inflation rate will devalue the dollar in their hands, but are satisfied with consistency with the Great Moderation period, and returning to similar stability will be a huge victory for fiat .
However, what does success mean? Ultimately, it depends on how we think about the outcome.
1982, the United States went against the wind. The computer revolution has just begun, putting the country on the cusp of productivity boom, and the more destructive consequences of the Internet era are still in a distant future. The United States is on the verge of winning the Cold War and has basically overcome the social tensions of the Vietnam War .
The most important thing is that the gap between the rich and the poor is far less extreme than it is now, and the American people are optimistic. Fast forward to 2022. A war broke out in Ukraine, causing Russia to be forced out of a global financial system centered on the dollar. The planet is facing a climate catastrophe, with a generation of teenagers and young people in their 20s emerging from a global pandemic, skeptical of the rigid capitalist order of the 20th century.
Ultimately, for the central bank responsible for protecting the value of fiat currency, what is important is the view of daily currency users. People’s views are deeply influenced by social media today, and many believe it is an unpredictable system, which makes it difficult for policy makers to manage their information and maintain trust.
It is difficult to predict whether Powell's policy will be successful, but the future of Bitcoin still cannot avoid the correlation with the policy.
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