Discussion on New US Fed Agreement and Its Impact on Crypto

Discussion on New US Fed Agreement

Kevin Warsh proposed a new agreement between the US Federal Reserve (Fed) and the US Treasury Department, sparking discussions about the potential for changing monetary policy. Historically, the current discussion harkens back to the 1951 agreement that redefined the relationship between these two institutions. Today’s context raises concerns about Fed independence and the growing interest in cryptocurrencies as “hard” assets.

Technology and Its Development

The creation of a new “agreement” between the Fed and the US Treasury Department could involve various scenarios, including more active yield curve control (YCC) and potential debt monetization. This approach could lead to lower real yields and increased volatility, especially if we see the synchronization of Fed decisions with the Treasury’s needs.

Impact on Cryptocurrencies

The crypto community views these changes as potentially positive, as lower real returns and heightened intervention in monetary policy could encourage the movement of capital to alternative assets like Bitcoin. Notably, along with potential risks such as increasing debt, cryptocurrencies could benefit from liquidity support.

Similar Scenario

Analyzing the past, it is worth mentioning World War II when similar monetary management methods were used to stabilize the economy. However, the modern state of the economy and financial markets complicates the simple application of old methods.

Economic Consequences

Political pressure on the Fed to reduce debt servicing costs may intensify. Experts warn that this could lead to undue interference in monetary policy and fuel debates about the Fed’s dependency on the Treasury.

Conclusion

If Warsh’s proposal leads to lower real yields and easier liquidity conditions, it could positively affect assets like cryptocurrencies. However:

• Strengths: Potentially rising cryptocurrency prices due to alternative investments.
• Risks: Possible loss of Fed independence and deteriorating trust in monetary policy.
• Opportunities: Potential positive impact on the “hard” asset market.
• Threats: Increased volatility and inflation risk.

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