In a different universe

Aaaaand it's gone, musical chairs, deficit myths, and tax havens.

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In a different universe

On the left, the branding of one of the largest fund managers in the world. On the right. Fidelity Digital Assets, launched 2018.

If you have a hugely valuable brand you do everything to protect it and you can see the subtle strategy here. It looks like Fidelity on the right, and it’s believable but it is not the same and if it goes wrong we can ditch it forever and it won’t immediately be associated with us. 

That separation has continued for five years with the core Fidelity making no real statements about Digital Assets and leaving it to the subsidiary to do so, until this week…

Enter Fidelity Investments Head of Macro, Jurrien Timmer, who spent all last week focusing on Bitcoin. He began with some risk and return analysis across asset classes. Notice, bitcoin does not feature.

It does not feature because as he puts it:

His entire thread for completeness then:

“Government bonds can’t hold a candle to that risk-reward math”. Now it isn’t me saying it. It’s the Global Head of Macro at Fidelity (not Fidelity Digital).

Why is he saying this? I suspect because he knows in a few weeks time he might have a new product to sell. The Fidelity Bitcoin ETF. No doubt draft documents are flying around about ‘how do we market this thing? what should go in the documents etc? Hey Jurrien, what do you think?’

This further thread here compares bitcoin and gold and how they might work together in a portfolio.

Bottom line; everyone will have to have some in their portfolio in the end. Furthermore, the idea of owning even one bitcoin will become laughable for most people (if it isn’t already). After all, there are 62 million millionaires in the world and currently 19.5 million bitcoins in circulation. It’s pleasing to see that Dr Timmer has started to do the maths as we have been doing for several years now.


Perhaps the greatest sketch in South Park was the one of Stan and his father at the bank.

Encouraged to save, Stanley deposits $100 and the clerk invests it in a ‘Money Market Mutual Fund’ … and it’s gone. The joke being that his savings last approximately eight seconds before they are destroyed.

In reality, the joke is rather more complex. The bank does not have your money at all; quite literally it is gone even before you begin because that is the nature of fractional reserve banking, it is loaned out in the hope that it comes back with interest. In America, the reserve requirement for banks is zero. That doesn’t mean you won’t get your money back, but if all customers request their money at once, you will have a problem as we saw with Silicon Valley Bank earlier this year. 

For banking regulators, one of the issues is the speed with which deposits can now be withdrawn. Most of the innovations we have seen in Australia (PayID) and Europe (SEPA) mean banking payments are immediate. Central Bank Digital Currencies are being sold to people under the same premise; speed and ease. It’s great for customers, but extremely bad for regulators and banks because previously a bank run would take weeks to develop as people queued for physical cash. Now, it is a few clicks. It is entirely conceivable, indeed probable, that a bank could collapse in hours. 

The Swiss are first movers here. After the humiliation of the Credit Suisse collapse, Reuters reports that the Swiss are changing their rules to ‘prevent bank runs’. I suspect that they mean slow them down.

“Among the measures being discussed is the option to stagger a greater portion of withdrawals over longer periods of time, one of the sources said. Imposing fees on exits is also an alternative being discussed, two of the sources said.”

It’s amusing since the rules are irrelevant. Once the run commences the bank doesn’t have your money in the first place, they were never going to pay you and now under the new rules they don’t have to. From a customer perspective, you were never getting your money and with these new proposals that remains true but now comes with an additional dose of faux legitimacy. 

It seems to me entirely sensible for regulators to do this. Something has changed; the speed with which customers can react not just to withdrawing but the speed with which they hear about the bank run is also immediate. Regulators have got to find a way to slow customers down. I fully expect CBDCs to take account of this changed environment.  

It could well result in large cash balances with any financial institution becoming a thing of the past because the whole point of cash is that you can have it immediately. These changes will make short term treasuries more liquid than cash, which will be excellent for governments with lots of bonds to sell. So there is no downside for governments if big holders of cash like Apple, Google etc. decide it's too dangerous and switch to treasuries. In fact, it's good news for everyone except USD holders and banks themselves. 

The game of musical chairs continues. Where can I put my money so that I can access it? So that it cannot be seized or slowed down or put at risk from some governmental insanity? Much as I hate bonds, they are a whole lot better than cash because governments will burn down the banks before they burn down the bond market.


Stephanie Kelton is the author of “The Deficit Myth” which lays out a view on why deficits do not really matter and governments should therefore permanently run them.

It would be fair to say that this theory has been extremely popular with governments. So much so that Ms Kelton was appointed as Chief Economist for the Democratic Minority Staff of the Senate Budget Committee, which probably sounds more important than it was but nonetheless had political influence.

Her chart lays out that one person's deficit, by definition, is another's surplus and since the means of production are unaffected by this, what does it matter? That is true, but I think this chart also maps declining US influence. The growing green areas are really a guide as to how increasingly influential the BRICS countries are becoming. 

Deficits mortgage the future. They are highly attractive because the person running the deficit will most likely not have to live with the consequence. 

Lots of people in bitcoin think MMT is the economics of the crazy house, me included, but you have to concede that they have been tremendously successful in marketing their idea. I suspect that success is greatly aided by the fact that they are selling a story most governments love to hear and the full consequences of the insanity can take decades to evolve.

No risk

A lovely visualisation of the world’s leading risk-free asset. Government bonds. 


The Euro is hastening towards the 20% mark as a global settlement currency. The shift is incredible in such a short period since 2022. There are no doubt reasons for it, like exchange rates, generally reduced activity in the Euro-zone and of course the excuse that politicians will reach for “the war in Ukraine”.

More likely though there is just a general loss of confidence in the Euro. Their economy is nowhere near as strong as the US, the BRICS or even struggling China. The Euro is going down in value and most likely not coming back so people don’t want it and it's pretty much as simple as that. 

Backing up that reality is the share of global GDP represented by the Eurozone.

It’s a massive decline that will drop below 15% this year into the ranks of the also-rans. It’s surprising then that Europe still thinks it can dictate terms to other nations. The borderline harassment of US tech firms for instance and then last month the addition of new countries to the territories “deemed non-cooperative on tax”.

I look at the names there and I too think “tax haven”. I also think democratic nations can choose their own tax rates if they want to. What on earth does it have to do with the high taxing, low birth rate, collapsing economies of the EU?

At the EU’s rate of decline, it will not be long before nobody listens and the fact that the big tech companies completely froze them out of AI for the first few months of this year tells me we are very nearly there.

Further information

Read our bitcoin news wrap-up on Livewire: Bitcoin news you didn’t see in the Fin Review

Our October 2023 report to investors can be found here.

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