Hello everyone, today, 8.22, Tuesday, my old friend Brother Bai meets you again. Everyone has heard of financial crisis, economic crisis, and inflation, but few people have heard of currency crisis. That is because of the three recent economic crises, only the one in 1929 was serious enough to trigger the so-called currency crisis. It is the final evolutionary form of economic crisis and the most complex and terrifying form among economic phenomena.
There are two reasons why we are talking about this currency crisis today. The first reason is that if we have a currency crisis, BTC may become the savior of the entire world. The second reason is that this year's situation is really similar to that of 2029. It seems like an unknown economic recession, but it is actually very powerful and is likely to trigger the final form of a currency crisis. Friends, maybe we are experiencing an economic crisis that is more complicated than the Great Depression of 1929. Get ready, let’s find out together.
The content of this issue will be a very dry article. Brother Bai made an in-depth comparison of the economic situation in 2029 with this year's economic situation. The content is very detailed and I will use the shortest time and the most straightforward words to help you sort it out today. In the first part, let's talk about what happened in 2029. In the second part, let's talk about what the so-called currency crisis was in 2009. In the third part, let's talk about the situation this year. , why the situation in 2023 is very similar to that in 2029. In the fourth part, let’s talk about BTC again. Faced with such a situation, what are its risks and opportunities?
Let’s talk about the first question first, which is what happened in 2009. If you grab a random person on the street and ask him what happened in 2009, he will tell you that it happened in 2029. There was a financial crisis. This crisis was because after World War I, the American people ushered in 20 tumultuous years, with overcapacity in industry and the prevalence of consumerism. Coupled with the arrival of cars, fuel lamps, etc. at that time, the economy Rapidly rising, but later, due to interest rate hikes, the entire stock market exploded in an instant, thus triggering an all-round economic crisis. This is indeed true, but I can only say that this is not entirely true, because, we know that if If a stock goes wrong alone, it can be considered a financial crisis at most. But how did it evolve from a small financial crisis to the largest economic depression in history, and also led to a currency crisis? So we still need to answer this question. Digging a little deeper, it is still the same sentence. A layman can see the excitement, an expert can see the door, and see the essence through the phenomenon. This is what we here are very eager to do.
First of all, let me organize this timeline with you. Let’s dismantle in detail all the causes and consequences of this incident in 1929. Okay, let’s start from the beginning and pull the timeline back to the ten years before the stock market crash in 1929. Year, that time was the golden age of the American economy, also known as the noisy 20 years. The industrial revolution promoted technological progress, and technological progress promoted the development of applications. Cars, electric lights began to become popular, and urbanization promoted economic development. At that time, the economy was growing extremely fast. The stock market had been rising for seven consecutive years. The people at that time had never seen a fall. Moreover, in the years between 2020 and 2027, the interest rate at that time was It is very, very low. If the interest rate is low, everyone will borrow money. Many investors relied on low interest rates to borrow some money to use leverage to speculate in stocks. Alas, this was foreshadowed by the next thunderstorm. At that time, interest rates began to rise in 2027. This interest rate has been From 2027 to 2029, this interest rate hike directly drove up those investors who borrowed money and used leverage to speculate in stocks. Finally, in October of 2029, within a week, the U.S. stock market The stock market suffered a huge shock and ushered in a big plunge. This week also became the starting point of the global economic depression. When investors were liquidated, who was the first unlucky person? That is the private bank that lent them money. Here they are classified as private banks. You can understand that they are some cooperative financial management companies, small loan companies, pawn shops, private finance or private equity institutions, hedge funds, etc. Some unofficial banking institutions failed to repay their shareholders, which led to the bankruptcy of hundreds of private banks. One year after the stock market crisis, this risk spread to the United States along with these private banks. Mainstream banks, the first to fall are regional banks. Because at that time. Many of the financial backers and shareholders behind these private banks were local regional banks. Therefore, after the collapse of these private banks, regional banks became the first places where runs occurred, and they collapsed within a year. More than 300 regional banks have been bankrupted, so guess who will go bankrupt after the regional banks fail?That is, who are the shareholders and fund providers behind them? It is a large bank in the United States, so a year later, this risk will spread to large banks in the United States, resulting in tight liquidity and a run on the large banks in the United States. At this time, there may be a side story. Well, the Federal Reserve that we are very familiar with now was actually established in 1913. It stands to reason that the Federal Reserve should participate at this time. In fact, the Federal Reserve does want to participate. However, it was restricted by the monetary system at that time, which was called the classical gold standard. , under this monetary system, the Federal Reserve cannot directly turn on the money printing press, and cannot directly print and issue money to rescue the market. Therefore, this also laid the groundwork for this great economic crisis.
So here we want to talk about what the classical gold standard is. Let’s talk about it in layman’s terms. Let’s give an example first. For example, if every one-dollar banknote in the United States needs 100 grams of physical gold as a store of value, this one-to-one To a certain extent, you can understand the U.S. dollar as a direct exchange certificate for 100 grams of gold. We can take 100 U.S. dollars to the bank to exchange for our 100 grams of gold at any time. So at that time, if the Federal Reserve wanted to release money, it wanted to print What he wants to do with money is to reserve gold. However, the increment of gold is very limited. You are in urgent need of money, and you can't get gold out of it. Oh, this is the case. Well, isn't it just frozen? Moreover, we also know that at that time, not only the United States adopted this gold standard, but also European countries such as the United Kingdom, France, Germany, etc., they also all adopted the classical gold standard, and At that time, the national debts of countries also existed with each other. If the US dollar broke away from the gold standard system, basically all countries that adopted the gold standard system would experience an economic collapse caused by currency decoupling.
Okay, let's go back to the economic crisis in 2029. After the big banks in the United States collapsed, the President of the United States, Hu Fu, was a very famous god of reverse bailouts. He not only In this environment, he continues to fight a trade war, and at the same time he also raises taxes, constantly adding to the crisis, causing the U.S. economy to worsen and continue to decline. The crisis fermented in the U.S. banking circle for about another year and began to spread to the entire Europe. It also fermented in Europe for a whole year. As a result, a large number of people in Europe began to abandon their national currencies and exchange them for gold. There was already a shortage of gold in the market, and now it is even more scarce. There is not much gold in the hands of central banks of various countries. As a result, not only the US dollar, but also the British pound here have given up this tradition. Golden Gate, this is the monetary system that has been used in our global economic market for more than 100 years. The classical Golden Gate has completely collapsed. Then our economic crisis has also become this so-called currency crisis, which is this currency crisis. , let the 29-year Great Depression continue to ferment, what about the global economy? After decades of retreat, this is why Brother Bai said that currency crisis is the final form of economic crisis. What about this disaster? It lasted until four years later, when Roosevelt’s Hundred Days New Deal in 1933. From that time on, the economy It started to recover slowly. Well, this is the whole process of 2029. Now let’s summarize this currency crisis: why will the classical gold standard be eliminated? What is this core? You must have guessed the core of this, that is, the monetary system at that time simply could not keep up with the economic development at that time. Economic development requires appropriate inflation, but the inflation rate of your gold cannot keep up with the inflation rate of global currencies. Then this will not happen If there is no contradiction, then our classical basic position will also fall.
Then let me ask you another question, what is our current global monetary system? Many people must answer that it is called dollar hegemony. What about this system? Although the name does not sound very good, this system has indeed ensured the smooth development of our global economy for decades. But now, does this system seem to have a problem? Little question. We see that more and more countries have formed this monetary union and seem to be trying to fight against the hegemony of the US dollar. So let me ask you, what is our problem at this moment? Okay, you smart people must have realized that the inflation of our so-called dollar hegemonic monetary system is already far greater than the development of our current global economy. This is another contradiction, right? Then you said that this contradiction has come, we really have a currency crisis this time, and our society is such a society with highly developed Internet, then what kind of currency system will we evolve next?
Okay, let’s not answer this question for now. Let’s move on to the third part. Let’s discuss how big the crisis is this year, why it is so similar to 2029, and whether it will lead to a currency crisis. ? Whether it is 1929 or today in 2023, the cause of all these crises is to cut interest rates first. After a low-interest development environment, after growing wildly, interest rates suddenly increased. Then the inflation caused by the interest rate cut If inflation continues to be high, the Federal Reserve will continue to raise interest rates. This month I think it will have to increase by another 25 basis points, but everyone knows that if it keeps raising interest rates, what about the U.S. government? , we will once again face the fiscal cliff, and the potential currency crisis will intensify, and the hole this year is particularly big. Let us first do the math and see how big the risk exposure is this time.
Okay, let’s first calculate how much water has been released. In the interest rate reduction cycle from 2020 to 2022, the Federal Reserve’s federal interest rate has dropped from less than 2% to 0.25% in the past two years. During the same period, it was also accompanied by large-scale Is the release of water the so-called epidemic relief? Moreover, this water release is the largest water release in history. We all know that this series of operations in the United States in the past two years has increased the deposits of the entire US bank from 13.3 trillion US dollars before the epidemic to 176,000 US dollars now. 100 million U.S. dollars, so if we do the math, we should have released about 4.3 trillion yuan of water in three years. Okay, so here’s the question. Except for the 430 million yuan water bubble, let’s go in and calculate how much we have lost. Because, The loan market in the United States is actually not particularly good. 85% of the 430 million yuan, or more than 3 trillion yuan, has flowed into the U.S. bond and MBS markets. We all know that the Federal Reserve will start to raise interest rates starting in 2022. 12 Interest rates were raised eight times in a month, from 0.25 to 5%, which resulted in a loss of about 20% for U.S. bonds and MBS, which meant that prices fell by about 20%. As for U.S. debt, the current market size is about 31.5 trillion. As for the MBS collateral market, it is now about 12.7 trillion. As for U.S. debt, before the epidemic, it was a market of about 23.7 trillion. So the current The scale is about 31.5 trillion, which means it is about 8 trillion in more than three years, right? The MBS collateral market was a 10.2 trillion market before the epidemic, and now it is about 12.7 trillion, so It has increased by about 2.5 trillion in three years, so the two new additions add up to a total of 10.5 trillion. But we can also calculate the loss, because didn't it lose 20%? After such a calculation, it is probably a loss of about 2 trillion. So currently we only count these two markets. There are other markets that we will not count anymore. Let us estimate in our minds how big the gap is and save it. That’s it. Now the risk exposure of RMB 2 trillion is the highest in history. So if this financial crisis really makes a hard landing, it will be the biggest shock in history.
But I believe that the Federal Reserve will not let such a thing happen this time. Why? Because the Fed is now very experienced in dealing with these things. He is no longer the Fed in 2008, right? Moreover, let’s take a look at who is the current minister of the U.S. Treasury Department? Yellen, Yellen came from the Federal Reserve before. He and Powell are former colleagues. The two people must have a tacit understanding of cooperation. Moreover, after the financial clarity in 2008, the Federal Reserve began to release water to rescue the market. Who was in charge of the release of water at that time? , that is Yellen, so Yellen and Powell can be said to be a strong alliance. They both know how to let go. Even so, we cannot take it lightly. Why? Because the Great Recession of 2029 told us that no matter how the financial crisis starts or ends, it will be a hard landing or a soft landing. Quick crisis or slow crisis, the risk of currency crisis is the biggest risk.
The previous problem of Silicon Valley Bank seemed to be just a small starting point and was quickly solved. But there is one thing behind this problem. I hope you understand how the Federal Reserve solved the problem of Silicon Valley Bank at that time. It was opened Regarding the bank’s rescue plan, if the bank is in trouble, then it can ask me to get money. What is the upper limit of my rescue plan? Two trillion, I have approved two trillion in funds for banks like you. Doesn’t this two trillion sound a bit familiar? So this rescue looks like a rescue, but what is it actually? In fact, it’s still a waste of time. So as for the situation this year, we can roughly judge that it is impossible to stop raising interest rates, and it is impossible to stop releasing water. The situation behind may be very complicated. We need to do all kinds of Tai Chi, both releasing water and raising interest rates. To grasp, both hands must be strong. So in this tangled state, what are the risks to the US finances? It will also increase day by day, and there is a high probability that this time it will become a slow crisis, just like in 1929. That might be true, and it is very likely to trigger a currency crisis like the one in 1929.
Okay, now that we are talking about it, let’s talk about the US dollar system. Going forward, we will mention the Bretton Woods system. In 1945, 44 countries discussed it together. Hey, we need to have a way to fix exchange rates. , let all the currencies of various countries be pegged to the US dollar. It will be easier for us to do business and make settlements. What about your US dollar? Your U.S. dollar must be pegged to gold, and you can’t mess around. As for your U.S. dollar, it was equivalent to 89 grams of gold at that time. But everyone knows that later, because the production of gold could not keep up with the inflation of the U.S. dollar, eventually in 1971 Countries around the world have abandoned the classical Golden Gate system, so what do we adopt next? Later, we adopt what is called a floating exchange rate system, which means that the currency exchange rate is determined by market supply and demand. What about the market supply and demand? To put it bluntly, if your country is strong, has good monetary policy, and has good products, then other countries will Well, you will use your country as foreign exchange reserves. In reality, it is what we call US dollar hegemony. Every country uses US dollars as foreign exchange reserves. Of course, in addition to the economic foundation of the United States, the most important thing is that the United States secured oil at that time, the US dollar oil agreement. The United States was very smart. It reached an agreement with Saudi Arabia and signed an agreement to use the US dollar as the currency to purchase oil. As for why, it’s hard to elaborate, so I won’t go into it. In the end, it led to the current hegemony of the US dollar. Regarding the influence of oil, everyone knows that it is a strategic material, especially in that era. It is the most precious energy. You can never have too much. In the past few decades, we can only use U.S. dollars to purchase and use U.S. dollars. Therefore, the demand for U.S. dollars in the economic market is unquestionable. So this rationality Well, it was absolutely reasonable at that moment, just like the classical gold standard system. It was also absolutely reasonable before 1929. However, this monetary system will be different today in 2023. Now Well, the currencies of our countries around the world are all mixed together because of foreign exchange reserves, national debt securities, etc.