Last week ended with some fireworks as the Bank of Japan decided to intervene in its currency market to prevent the yen from slipping into oblivion. At the moment there is a lot of speculation around how they sourced the dollars that allowed them to intervene and (temporarily) stop the yen from plummeting. As our friend Larry Lepard points out in the tweet above, US 10Y Treasury yields were up almost 4% with the price crashing right around the time the Bank of Japan decided to intervene to save the yen, which is leading many to speculate that they decided to dump treasuries to get dollars to prevent the yen from hemoraging.
While this is just speculation at the moment, if it proves to be true it would be a historic moment considering the fact that Japan is the largest holder of US treasuries by a wide margin. If Japan has truly capitulated and decided to dump treasuries in favor of defending their currency it could set off a contagion event that emboldens other holders of US treasuries to do the same thing. This would be the absolute worse possible scenario for Jerome Powell and crew at the Fed. Especially if this unfolds quickly, which seems like a real possibility after watching treasury yields pump again today. Within a month or two, the Fed could find themselves in a position where they are forced to turn QE 4eva back on to step in and purchase an insane amount of treasuries to stop things from getting out of control as historic buyers and holders turn into aggressive sellers.
Even worse, if inflation proves to stay as elevated as it has been in recent months the Fed will be turning on money spigots that will be dousing the inflation fire with high-octane gasoline. This is the recipe for Weimar-style hyperinflation in the West. And it seems very plausible considering the fact that energy supply chains are woefully broken and food systems around the globe begin to really feel the pain wrought by the energy crisis.
This, ladies and gentleman, is exactly what the camel's back breaking looks like. Your Uncle Marty could be wrong about this and he really hopes that he is, but considering the spasms in treasury yields, the yen and the pound over the last two trading days it's hard not to listen to the blaring alarm bells that are ringing in his face. Gravity always wins out in the end.
What's been interesting to see is bitcoin's relative strength throughout all of this chaos (cue the dump). As markets go to shit and true panic begins to set in across foreign exchange markets it is encouraging to see the free market solution to all of this madness shining a bit.
Who knows if bitcoin will continue to hold strong throughout all of this. If we lived in a sane world it would not only hold strong but rally significantly as people begin to realize the ills that are wrought by centrally planned monetary systems controlled by men and women who think they can micromanage the global economy. Maybe the camel breaking its back is the wake up call people needed to begin taking the best money the world has ever seen seriously. For the future of humanity, I sure hope this is an inflection point in bitcoin's life that forces people to recognize what they have at their fingertips; the power to separate money and state.
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Forgot my laptop charger at the studio today and banged this out with 7% battery left. Not all heroes wear capes.