The inflation target for the European Central Bank is 2%. However, the market does not expect the ECB to reach its goal in the near term. Since 11 years, major central banks have been trying to absorb the crash of 2008 by low-interest rates and quantitative easing.
Max Keizer, a Bitcoin proponent and market analyst, tweeted recently about the issue. He said,
By bailing out insolvent banks and then allowing them to lever up 100x higher than before the crisis; the only recourse global central banks have now is to slow-default on trillions of debt via negative rates.
Notably, the method seems to have reached its brink with the interest rates sliding in the negative now. Warren Buffet explained the situation that is currently faced in Europe with the negative interest rates. He told the media,
We would be better off if we had a big mattress in Europe that we just stuck all of this stuff in it – if only I could just find the person whom I trusted to sleep on the mattress! That’s what we would do. If we have a billion euro at -35 basis points, that would be 3.5 million euro a year that it’s costing us just to have that.
As the debt and the effect of inflationary policies is rising past its critical point, the banks will now be motivated to charge on the deposits. Moreover, Mario Draghi, the president ECB president, promised to ease of monetary policies by lowering the rate.
Christine Lagarde, the former IMF head will take Draghi’s seat in October this year. She should be expecting to manage challenging economic conditions.
Bitcoin’s Compounding Rate
While the interest rates on deposit and Government bonds are facing a drop. Bitcoincontinues to be the best performing asset of the decade. Anthony Pompliano, the founder of Morgan Creek Digital, tweeted,
Bitcoin’s compounded annual growth rate is 235% over almost a decade. The most valuable “thin air” in the world
Max Keizer, noted that the rate is “literally 10 times” the annual compounding rate of Warren buffets’ Berkshire Hathaway over the same period.
The rise of both Bitcoin and Berkshire Hathaway was primarily witnessed in during the last decade; Bitcoin had just been introduced a decade back. Hence, the 235% compound annual growth rate (CAGR) seems exaggerated. Nevertheless, even from 2014 until now, the CAGR has been above 78%, which is higher than most assets. The CAGR of Apple in the past five years is 7.9%.