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THOUGHT OF THE DAY
The Next Financial Collapse There's this economic myth being spread and adopted by a worrying number of otherwise reasonably intelligent people. That is, the next financial collapse will be triggered by student loans.
Though it's an assertion that intuitively makes sense: at $1.5T, student loan debt is at an all-time high, millennials love to complain about student loans on Twitter - contributing to a sort of illusory truth effect, and it sounds right since a bubble burst in education, one of the three horsemen of the American economy - followed by housing and healthcare - would mirror a pattern we saw in 2008.
But it likely won't be the case. At least, not from higher education.
This time around, it’s not households using cheap debt to take cash out of overvalued homes. It's "giant corporations using cheap debt — and a one-time tax windfall — to take cash from their balance sheets and send it to shareholders in the form of increased dividends and, in particular, stock buybacks."
Basically, corporate debt is near an all-time high but corporate equities are near lows so corporate debt is being used to prop up/overinflate corporate equities pricing. This time, cash outs are driving corporate debtto record levels.
And if we look to the numbers, corporate debt is hovering around $9T which is about 5-6x student loan debt and about 50% of all consumer debt. So when we play the "what will trigger the next recession game" it truly is more akin to playing connect the dots...but there are only two dots.
What does this mean for bitcoin?
I'm publishing a post about this soon, but the TLDR is we'll see a flight-to-quality where people move out of riskier assets to safer assets that empirically retain their value. Unfortunately, bitcoin is still perceived to be a riskier asset and, as I've written before in a previous Thought of the Day, it'll likely take a few more recessions before that perception comes undone.
READS OF THE DAY
📖 Who controls bitcoin core? And does it matter? Jameson Lopp with the answers.
🚀 NYM There's layer 1, layer 2, and then there's layer...0. NYM is a decentralized authentication and payment protocol which will enable developers to build their own sustainable privacy-enhanced services without relying on the surveillance of users.