Hedge Fund CIO: “Once You Say $150 Trillion A Few Times, It Honestly Doesn’t Seem So Big”

By Eric Peters, CIO of One River Asset Management

“Some have put the global figure between $100 and $150 trillion over the next three decades,” said Janet Yellen in Glasgow, speaking at the COP26, prying opening the Overton Window. “At the same time, addressing climate change is the greatest economic opportunity of our time,” continued America’s Treasury Secretary, and she is undoubtedly right.

“These programs are exciting — but as big as the public sector effort is across all our countries, the $100 trillion plus price tag to address climate change globally is far bigger,” she added. And you see, the cost already appeared rather small. 

That’s how the Overton Window works. Because “$100 trillion plus” somehow feels quite a bit less than $150 trillion. And once you say $150 trillion a few times, it honestly doesn’t seem so big. After all, when you think about it, that cost is spread out over three decades, which leaves it just $5 trillion per year. And that number used to feel utterly out of reach until 2009 when the Global Financial Crisis sparked the first $3 trillion US federal government budget.

Of course, the deficit that year was $1.5 trillion, which seemed large at the time, but is just half of today’s $3 trillion deficit. And this year’s deficit is a wafer-thin-mint smaller than last year’s $3.1 trillion number.

Besides, it only took the Fed to click a button to create the roughly $6 trillion to purchase nearly all of Janet’s issuance for the past two years, and despite widespread panic about the unsustainability of such an arrangement, 10-year interest rates remain just 1.45% even with inflation running at 5%, house prices up 20% this year, and the S&P 500 at all-time highs (+25% year-to-date).

But of course, those returns seem small with Bitcoin up over 100% this year. And such a move used to be large.

But Ethereum is up 620% in 2021, which isn’t actually that impressive when compared to its 3,460% jump since Jan 2020. That’s the kind of number that makes $150 trillion seem smallish. And in the end, it might be. But no worries, $300 trillion is just a double. 

Standing Ovation:

The President’s Working Group (PWG) guidance on the future of stablecoin was published. It was a philosophical leap that makes the endgame crystal clear – a pathway led by US policy that invites private innovation into the existing financial regulatory architecture. ‘Wildcat banking’ issues will not exist under the PWG guidelines. US dollar stablecoin will reside inside the insured banking system under the purview of the Federal Reserve. The central bank can play the role as lender of last resort against the collateral held by stablecoin liabilities. Financial stability risks vanish. The private sector, not a central bank, is going to lead the evolution to a digitalized US dollar. America’s government/system deserves a standing ovation.

The PWG guidance also punctuates the philosophical divide between the US and China. The US is embracing private stablecoin as the scalable solution for the digital economy. The technology is working. Under the right regulatory framework, it can rapidly flourish. And it will. China has taken the angle of centralized control. Its private sector captured digital payments initially, and that is being outlawed in favor of a central bank digital currency. There are now 140 million individuals with e-yuan accounts, and transaction volume of nearly $10 billion. But there is no e-yuan appetite in the global digital economy, where the US dollar dominates and is now poised to rapidly expand.

It is now nearly certain that China will lose this race for digital dominance, but in such an important matter, the US must press its new advantage.