Breakdown Beta Test: Recent Episodes
NLW
Hey guys!
Something different than planned today. It was looking like I wasn’t going to have time to do a one-thought post, so I decided to try something I haven’t. This is a read of someone else’s post.
Some of you may remember Jamie Catherwood from this episode of The Breakdown on the financial history of pandemics.
Well, Jamie just wrote a great essay today comparing the Hertz Bankruptcy rally to an 1860s rally for land grants from an island homesteading project that had been found to be a scam 40 years early. It was like they were trading sponsorships to the Fyre Festival.
This isn’t the type of post I imagined doing, but I thought it was a great little piece and that you might enjoy. If you do, give Jamie a follow!
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Happy Monday,
New format being tested this week. Same length (6-8 mins) but 1 topic.
Hope you like it
NLW
How CBDCs Could Undermine Commercial Banks
First, let’s define some terms. A “central bank digital currency” (I’ll use the acronym CBDC from here on out) is a digital fiat currency. In most versions of proposed and in development CBDCs, the digital currency is actually a part of the money supply (versus just a claim on a physical bill).
Discussion of digital currencies has been on the rise for some time, although it has accelerated over the last year thanks to two factors:
The introduction of Facebook’s Libra
China’s acceleration of their DCEP (digital currency electronic payments) project in response to Libra
Since then, there has been a tidal wave of government interest in digital currency projects, working groups formed among nations, and increased interest from the Bank for International Settlements.
The perceived benefits for CBDCs include:
Solving information issues (in other words, being able to actually understand how big the money supply is and how quickly it’s moving at any given time)
Solving money distribution issues (in other words, being able to get people money they’re owed - or claim money the government is owed)
Greater visibility into possible financial crime.
Hanging on this second point for a minute… When discussions began in earnest about how to distribute Federal stimulus money, one draft proposal from the House included a provision to create a digital dollar in order to facilitate easy payment. This was quickly hacked out of the bill (for reasons we’ll get to below) but was remarkable for being included at all.
Now, when it comes to the third point - greater visibility into possible financial crime - this is also one of the push backs. Three key downsides or arguments against CBDCs include:
Greater surveillance capacity - upon all citizens not just criminals
Complexity to implement from the system we have today
Disruption of commercial banking sector
It is this last point that is the subject of a recent research report from the Federal Reserve Bank of Philadelphia’s research arm.
In today’s system, citizens don’t have a direct banking relationship with the Federal Reserve. Instead, they interact with commercial banks.
The Philadelphia report, however, argues that in a CBDC context, many citizens would instead opt to bank directly with the central bank, due to perceptions of greater stability. The Fed could become a “deposit monopolist,” which would threaten maturity transformation, as described here by The Block:
Maturity transformation is a practice among banks by which they secure short-term sources of financing — including deposits — which are then transformed into offerings like mortgages and other long-term forms of lending.
So why does this matter?
The conversation around digital dollars is heating up. Former CFTC Chairman Christopher Giancarlo is leading the Digital Dollar Project advocating for a US dollar CBDC.
One of the biggest sticking points is likely to be in questions of relationships with commercial banks, so understanding the argument is extremely useful in getting a sense for how this might play out.
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What’s going on guys?
First, a funny note. I’ve produced so many podcasts (like 7 ish in the last 36 hours) that I lost track and talked about the Bloomberg $20k report on this one again, even though I touched on it yesterday too. Apologies for that - and thank goodness this is an experiment. The meat of it anyway is the discussion of the Tiananmen Square anniversary and interpretations of the job report.
Thanks for checking it out!
NLW
The Daily Down - 6.4.20
Topic 1: 31st Anniversary of Tiananmen Square
There are two reasons that this is a notable reference point. The first has to do with China’s continued push to absorb Hong Kong back into the mainland. A traditional demonstration was banned but a smaller version happened anyway, in defiance of the order.
The second has to do with the historical analogy to major questions of how governments interact with protestors.
This created an extra layer to the debate about whether the New York Times should have run Tom Cotton’s article advocating for harsher treatment of protestors.
Ben Hunt argues that, when it comes to parallelism, what we should be watching for is the erasing of history.
Topic 2: What to make of the Jobs report?
The US jobs report came out and, instead of the expected loss of 8.3M jobs (which would have put the unemployment rate at nearly 20%), there were apparently a gain of $2.5M jobs - the biggest jump in history.
Markets reacted quickly to the positive news, although not everyone is convinced. Some focus on the fundamentals of the numbers listed:
Others pointed out a mischaracterization in the survey that could have increased the unemployment rate by 3%.
I'm certainly not rooting for this to be wrong. I would like nothing more than a V-shaped recovery for actual jobs and the real economy. I do tend to agree with Kevin here, however, that if anything this raises the stakes of the next set of reports.
Thanks for reading!
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What’s cracking friends?
Apologies for no episode yesterday but we’re back at it. Build notes: I thought that last episode was a little long for what I’m going for for these, so this one clocks in about half the length. Let me know what you think here or via DM’s.
Thanks for listening & reading - NLW
The Daily Down - 6.4.20
Topic 1: The ECB’s $1.5T Program
Due to both the normal European process plus some issues around political legitimacy caused by a recent German court decision on a 2018 ECB bond-buying program, the European Central Bank has been comparatively slow to react with COVID-19 stimulus.
Yesterday, however, they announced a new $1.5T stimulus program — bigger than what was expected. Not everyone was impressed.
Some focused on the implications around inflation.
By the way, if you want a deeper discussion about why “money printing” is unlikely to actually cause inflation, stay tuned for today’s main Breakdown episode.
Topic 2: Accelerating China-US Trade War
The trade war is back, baby!
The latest salvo is the US threatening to ban China-US flights by Chinese carriers starting June 16th.
Interestingly, this threat seems to have gotten the desired response.
Topic 3: Bloomberg Report Suggests $20k BTC
Okay, okay, so usually I ignore price predictions. And even in this case, the price prediction is the least interesting thing. Still, Bloomberg has put out another of its regular outlooks on bitcoin and it makes a strong technical case for the strength of the asset. Give it a read.
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Welcome to Breakdown Beta, and thanks for volunteering.
Sharing a little bit more about what I’m thinking:
The existing format of The Breakdown isn’t changing. I’m going to continue to combine macro and geopolitics with a bitcoin home team to try to help people understand the big power shifts happening in and to our world
I believe its still really early days in podcasting, in terms of everything from format to business model to best ways to engage with listeners
These formats that I’m experimenting with, if they resonate, could end up either as premium options or simply as bonuses that I do less frequently do create deeper engagement with the Breakdown community as it grows
But I really want to stress this: this is entirely learning and additional content not something that will impact the current format of The Breakdown
So, here’s what I’m currently thinking for a set of experiments. Each week, I’ll do the following, and at the end of the week (over the weekend) send you a short survey. If for whatever week you haven’t had time to review - don’t sweat it!
Week 1 (this week): Curation Week
Will be publishing a short daily email on the handful of most important things I’ve read. This format might evolve a bit but it will be focused on curation
Will include a short podcast about why each of these things is important
Will also kick off a Discord and a Telegram group
Note, I like Discord WAY better than Telegram…but this is an experiment, so...
Week 2: 1 Thought Week
Will still do an email and a mini pod, but it will be about a single news story/topic/piece that related to something happening that day
Week 3: Discussion/Social Week
Newsletter will be curation again, but more focused on discussion rather than news
Podcast, will be getting people to do micro podcasts explaining the idea in a specific tweet they shared
Week 4: Hybrid/Blend of all of these
Based on what I’ve learned/observed
Let me know if you have any questions. And anytime you have an idea throughout this, feel free to hit me up via email nlw@whittemore.io or DM on Twitter @nlw
Now let’s dive in!
The Daily Down - 6.1.20
Topic 1: The Stock Market Disconnect
It has become almost a trope on not only Bitcoin Twitter but FinTwit to remark on the unbelievable disconnect between markets and the real world. Still, even for the cynical, the sight of green markets contrasted with the red blood of protestors and red fire of flames was something to behold.
Some pointed out that in very real terms, the protests add a new dimension to the struggle of companies to recover.
Balaji also argues that we’re radically underestimating the ability for destroyed businesses to just spring back up when this is done.
The only thing that really makes sense to me about the markets right now? Gun stocks are way up.
Topic 2: China’s Recovery Not What It Seems
If one part of the hope for a quick recovery is the Fed’s unlimited printing money blunderbuss, the other is a look to a (according to the narrative) mostly recovered Asia. According to this briefing in the WSJ, that recovery may not be all it’s cracked up to be.
China’s urban unemployment survey showed just 6% of respondents out of work in April, against nearly 15% in the U.S. But most economists don’t believe these two measures are directly comparable, in part because China’s measure misses migrant workers who return to rural areas during downturns.
ANZ Bank estimates that total unemployment and underemployment in China—including involuntary part-time workers and those not actively seeking jobs—was likely around 16% in April. Consulting firm Gavekal Dragonomics thinks there were 60 million to 100 million workers away from their jobs in March and April, or 11% to 20% of nonfarm workers.
Topic 3: We’re Not Appreciating The Surveillance Implications
Just touching on this one briefly as its something I’ll certainly come back to, but it strikes me that there are a whooooooooooole lotta folks out there who were screaming about their rights being infringed during lockdowns just a couple weeks ago who are now cheering on a move that will massively increase the surveillance power and significantly threaten key freedoms of Americans.
Topic 4: The Least Fun $10K Bitcoin Of All Time
Bitcoin surged past $10k last night. It’s difficult and dubious to ascribe too much of any short term price movement to macro events (as much as we’d like to), but it’s still hard not to feel like the narrative relevance of a hedge against…well lots of turmoil…is resonating like never before.
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