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(Kitco News) –
The Fed will drive the U.S. economy into recession by this summer and Bitcoin’s December lows were a clear buying opportunity, according to Jeffrey Tucker, founder and President of the Brownstone Institute.
“It was pretty obvious where the lows were,” Tucker said. “I and anybody who has confidence in the technology, that was a very obvious buying opportunity.”
Tucker spoke with Kitco News reporter Ernest Hoffman on April 14. He said Bitcoin’s recent strength is no surprise to him, and investors need to learn their lesson about the leading cryptocurrency.
“It’s so hilarious to me,” Tucker said. “I’ve been in Bitcoin for the better part of 10 years, and every time it goes through one of these downswings everybody panics and leaves the market. The smart money just sees it as bargains and goes for it, and then they benefit from it.”
Tucker said the fundamental case for Bitcoin was made conclusively almost at the outset. “As far as I’m concerned, the proof of concept of Bitcoin was achieved once it achieved dollar parity,” he said. “The miracle was over. We had finally invented the equivalent of gold for the internet age. Digital gold is what it always has been.”
He said Bitcoin is fulfilling both of its main functions in the current environment. “One is to be a means of exchange, and that’s great,” he said. “But then also to work as the equivalent of gold, which is a safe haven for assets in times of financial monetary and economic troubles, and we’re certainly in those.”
Tucker said the Federal Reserve has undergone a massive “loss of credibility” on monetary policy in recent years. “For the better part of 28 months, they’ve been telling us that inflation is under control, and that it’s going down, and that it’s transitory,” he said. “That just keeps not happening.”
He doesn’t pin all the blame for the current conditions on the Fed’s beleaguered Chair, however. “Powell was trying to unravel this in 2019, but the Trump Administration started railing against him like he was trying to cause a recession,” Tucker said. “Then when the Great Pandemic hit, Powell completely sold his soul and engaged in a Weimar-style monetary policy.”
“By the time he figured out that he’s being trolled and got angry about it, and started trying to get control of the inflation, it was really too late.”
Tucker also said the central bank is now “sucking money out of the economy” and banks are no longer lending. “There’s a danger that the Fed, in its attempt to try to fix the errors of the past, actually creates more problems and drives conditions that lead to recession,” he said. “That seems to be where we are today.”
Interest rate hikes led to the banking crisis
Addressing the ongoing banking crisis, Tucker said attempts by some regulators and legislators to blame digital assets for the recent bank failures were misleading, as the real cause was a rapid repricing of government debt.
“It wasn’t crypto,” he said. “Of course Silicon Valley Bank had too many risky investments, but in this environment, what’s not a risky investment? The regulators had told the banks that the safest place for the money is in U.S treasuries of various maturities, so they were buying maturities that were paying the most, which are on the right side of the yield curve, so 3, 5, 10, 30 years, and that’s where they were holding the money.”
“Which was great until the Federal Reserve policy changed and therefore devalued the asset portfolios of all these banks.”
Tucker also said the broader contagion is there, even though other U.S. banks haven’t imploded yet. “The only reason we haven’t seen it spread, it’s not because other banks don’t have these problems, but because Janet Yellen came along and basically promised Weimar-style inflation,” he said. “Now what was funny to me about Janet Yellen’s unbelievably irresponsible announcement, is that it directly contradicts the policy of the Federal Reserve. So that’s a major problem.”
The job of the Federal Reserve, Tucker said, is to be the buyer of last resort of government debt. “People can talk about a dual mandate from the Fed over inflation and unemployment,” he said. “That’s nonsense. They have a single mandate, and that’s always to keep the government liquid.”
Tucker also said the recent PPI numbers, which came in well below expectations, are no cause for celebration. “The question is, why did the PPI come in as it did? There could be two reasons,” he said. “One would be that the Federal Reserve’s interest rate policies are working to achieve what they want. The other could be that it’s just a good, solid sign of an old-fashioned recession that’s developing.”
“I looked at the manufacturing sector, and there is every sign of a real, statistical recession that is pending if not already here,” he said. “That, more than anything else, could account for the decline in the PPI. Just a straight loss in demand for manufactured products and a decline in productivity overall.”
“If I were going to bet, I would say that’s my best bet.”
Tucker said the recession will be obvious by July, and will become apparent to everyone at the same time that inflation starts getting below three percent. “It’ll all happen at the same time.”
In the current market environment, Tucker said gold and Bitcoin are good places to be.
“Gold is the golden constant, it’s going to be there for you no matter what, and that, in times of upheaval, is very much to be valued,” he said. “Bitcoin is the newest member of this sort of ‘safe-haven family,’ and it really is a smart investment for people willing to take high risks.”
To hear Tucker’s analysis of the impacts of dedollarization, U.S. household debt, and demographic shifts, watch the above video.
Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.
