Bond Buybacks by the US Treasury and Worries about a Repeat of the Japanese Saga

Bloomberg published an article about the danger of repeating the mistakes of Japan decades ago via bond buybacks by the US Treasury. They say that the US is “playing with fire. However, Bitcoin long term investors have always known that fiat currencies including the dollar have been at risk of devaluation although the risk was always believed to be printing too much money. That could be what happens here as the US treasury hastens to buy back long term bonds which have risen to the highest interest rate levels seen since the Great Recession!

Will Bitcoin Profit from the “Debasement Trade?”

A follow up Bloomberg article makes predictions about how the “debasement trade” will work out. Echoes from the past (1970s) gold has gone up and in the current era digital gold, namely bitcoin, has gone up too. Ray Dalio has advised investors to reduce their bond holdings and diversify into gold and bitcoin. During the 1970s gold rose from $32 when the US was still on the gold standard to just over $300 at the end of the decade. In fact, in 1980 gold briefly hit $850 and ounce before the Fed raised interest rates to 20%, killed inflation, and rescued the dollar and sent the US economy onto a path of increasing prosperity.

Does the Fed Have the Wherewithal to Raise Interest Rates?

If you are hoping for a rally for gold and/or bitcoin you probably want the Fed to follow Donald Trump’s wishes and lower interest rates. Although the new Fed Chair Kevin Warsh says he is his own man, he was appointed by a president who is cheering on lower rates and has actively worked to discourage any rate increases. If recent history is any guide, Trump’s influence on Warsh will win out, the dollar will fall more and more than holders of bitcoin and gold will prosper. Meanwhile holders or stablecoins will fare the same as those holding cash equivalents like bonds, bank CDs, and money market funds.

Will the US Follow the Example of Japan’s Economic Crisis?

What Happens If the US Follows in the Path of Japan with a Weaker Currency?

During the 1980s the Japanese economy appeared set to take over the world. Then hidden loans caused the collapse of huge price bubble. Efforts by Japan to fix the situation lead to “the lost decade” of economic stagnation. This is what economists are worried about for the USA as US debt passes $40 trillion, the US treasury fiddles with buying back long term bonds, and the Fed hesitates to raise interest rates. If worse comes to worst we may see a stock market collapse and a debt crisis in the AI sector as well as with US national debt. If you have bitcoin holdings you may be able to ride out the storm and even make a tidy profit as the US tries to print money to work its way out of an economic crisis.