Markets have started fearing inflation. Inflation should have made a visible impact 6 months ago had Fed & ECB did not resort to more printing of bills. Let us remind ourselves why we are in this situation we are in?
There is a virus that apparently originated from China where the global leaders together with the John Hopkins center simulated the event of the covid pandemic at the infamous place called Wuhan at least 2 months ahead of the first known reporting. Our global leaders decided that the risk of deaths was so high that warranted shut down of economies and continue to do so. Meanwhile, innumerous people have died for lack of care, incorrect drug administration, mental health issues, and the situation is only expected to go worse as people lose their immunity due to various reasons. Those dead were immediately cremated leaving no opportunity for any forensic pieces of evidence on the cause of death nor we have the opportunity to learn. The existing OTC drugs that were reported by some doctors to have demonstrated high success rates were banned with vehement laws even though these drugs have been time tested. On the contrary, in a lot of trials, patented drugs have been used without the permission of patients that did not have great success rates.
Now that we have seen some history, how did our markets survive until now? The savings funds, the major equity/pension funds, and Government bills / Banking debts continued to keep the markets afloat despite the fact that the airline, travel & hospitality industry is dying every day taking along with them the livelihood of all those who were dependent on them. In developed countries, for most, social security secures people for their livelihood or individuals have started selling off their luxury assets to make good for their foreseeable future.
Now the market's sentiments have turned towards questioning the value of "$". The printed bills have so far bought the debt from Banks which has, in turn, saved some companies to live the current economic turmoil. Those that cannot have started declaring bankruptcy. On the other hand, the bills that have started flooding the market have started inducing a reduction in value for "the" / any currency for that matter. The market sentiments are not wrong but why not earlier is my question? The GameStop debacle has forced a lot of corporates who have been making huge profits during the covid crisis to look for lower-risk assets. What is the most trusted asset in the world? US treasury bills give you the near to best guarantee in our century-old history. So far it has not failed; that does not mean it will not fail! Well, if we are all sheep we follow the herd. Ain't it?
Powell`s hearing at the senate today pointed to the demand for treasury bills that has started eroding even the value of treasury bills. Now that the markets realize that there are some major investors buying the treasury bills, the dumping of stocks & futures has started in order to follow suit.
As most of our cryptos are traded in pairs, the value of stable coins has also seen market-driven volatility which in turn has exposed Bitcoin, Ethereum, and nearly most of the cryptocurrency out there.
Is this the vulnerability of the cryptos? Yes until there is an impactful relationship between $ & cryptos directly or indirectly.
Is the economy failing? not sure. The global debt to GDP ratio has slid by around 40% from 320% since the last 1 year. During the last economic crisis, this ratio was around 250%. So indeed this measure is not an indicator at all. In simple terms when the value of currency erodes fast enough that one cannot buy the same good at a similar price in the weeks/months preceding then we should start seeing the economic crisis at hand. However, I am sure the Fed and ECB can come to the rescue of the economy having anticipated the ongoing crisis.
On the other hand, if more funds move to Cryptos then the ability for central banks to control the economy withers away leading to an alternate decentralized economy. Demand for crypto will start rising in the coming days when the investors are no more able to buy treasury bills and the returns of these bills turn negative compared to the opportunities on crypto.
We are heading towards interesting times!