3 days ago
Lawrence Lepard Predicts 'The Big Print'
Although the Federal Reserve and other major central banks, even the Bank of Japan, are not today buying bonds or increasing the base money supply significantly, many people suspect that more overt financing of governments via the money-creation process may lie not too far ahead – what, in the past, often took the form of literally printing paper banknotes; although today, the process is likely to be more digital in character. One such person is Lawrence Lepard, author of The Big Print (2025).
Lawrence Lepard's new book The Big Print
Lawrence Lepard
Just in recent weeks, Japan's government bond market has had a price breakdown of the sort not seen since, perhaps, the late 1970s. People have been predicting disaster there literally for decades; but perhaps now the time is upon us. Even the US Treasury market, although one of the better credits in the developed world, has had a notable trend toward weakness. Bond buyers can see that today's historically huge deficits – the Congressional Budget Office predicts 6%+ of GDP deficits basically forever – do not seem to have any upcoming resolution. Despite the heroic recent efforts of the Department of Government Efficiency, Congress has not yet found the will to cut its spending in any meaningful way, preferring instead minor tweaks. But, decades of minor tweaking, in lieu of significant reforms, are what brought us to this point in the first place.
Lawrence Lepard is well qualified as a guide to this era. His history, first in the Venture Capital world in the 1980s, and later as a fund manager, has given him a front-row seat to the whole historical process. Most people don't have the time to follow these things very closely, or the expertise to judge them. About the best they can do is read certain business journalists. Fund managers have both the time (it's part of their job) and also the expertise, enough expertise to point out where the journalists are wrong, missing the main points, or, often, biased by certain interests. My favorite account of the crisis of 1907 was that of Jesse Livermore, one of the largest speculators of the time. Unfortunately for the rest of us, fund managers are often very busy, far too busy to write books. Ray Dalio, after his retirement from daily management of a large hedge fund, has benefited us with several insightful books. (His latest book, How Countries Go Broke, is due June 3.) I hope other fund managers also feel inspired.
Lepard begins his story around the introduction of the Federal Reserve in 1913, which followed the introduction of similar monopoly central banks around the world in the late 19th century. Immediately afterward, with the outbreak of World War I, these central banks were pressed to help with war financing efforts, with the result that floating fiat currencies erupted across the global landscape. But things really took a turn for the worse in 1971, when a combination of abject incompetence, and also a spreading enthusiasm for using monetary distortion to attempt to manage the macroeconomy (President Nixon wanted to be re-elected in 1972), resulted in the outbreak of floating fiat currencies around the world again, even in the midst of peace, balanced budgets and unprecedented prosperity.
There is a lot to tell along the way, taking things up through the Financial Crisis of 2008, and the Covid era of 2020. Lepard's expertise shows through, as his brief descriptions hit on the most important points and correct conclusions. The 2020 period, in which central banks around the world engaged in unprecedented monetary expansion, showed their increasing willingness to essentially 'run the printing presses' whenever things got tough. Unfortunately, along the way, they also showed Congress (and other governments worldwide) that no real discipline is needed, because every problem can ultimately be solved with the central bank printing press.
The natural conclusion of such logic is a Big Print somewhere down the line here, and maybe not too far away. The fact of the matter is, debt/GDP ratios have become so high, throughout the developed world, that the 10%+ interest rates of the early 1980s are no longer tolerable. Even at 6%, with a 100% debt/GDP ratio, that implies 6%-of-GDP in debt service costs alone, on top of 'primary deficits' (perhaps 3%-4%) driven by unreformed 'mandatory spending' programs such as Medicare and Social Security. Either a decline in currency value, or 'monetary inflation' as we called it in our recent book Inflation, or even more direct purchases of government bonds by central banks, may become necessary to inflate away the existing debt, and finance continued deficits at tolerable rates.
Unfortunately, coming this far, Lepard loses the plot entirely toward the end of the book, championing Bitcoin as some kind of improved 'Sound Money' system. It is not. The idea is that Bitcoin's supply is limited, so that wanton 'increases in the money supply' can't come about. This is true, but the reason why 'Sound Money' has always meant gold in the past, is because gold has been proven, over centuries of human experience, to be reliably stable in value. It's this stability of value that makes gold work so well as a basis for monetary systems.
This error, mistaking 'stability of supply' for 'stability of value,' is an old one, going back at least to Milton Friedman's flawed proposals of the 1950s. Or, as I put it here more than a decade ago, 'Bitcoin Proves Milton Friedman's Big Plan Was A Joke.'
Basically, Lepard is a bullish Bitcoin speculator. And, perhaps Bitcoin will rise in value, in coming years. It seems to be persistently popular. But it is this tendency to rise in value (or fall in value, dramatically, from time to time) that makes it unusable as a currency; and why it is not, today, used as a currency. If you want to see what a currency looks like, look at the US dollar stablecoin Tether (USDT). Since its value is linked to the dollar, we can be pretty sure that almost nobody is using it as a speculative vehicle. (Forex traders have better platforms, such as FXCM, to do their speculation on.) But, Tether has also had an enormous increase in popularity, with the number of outstanding Tether coins rising from $2 billion in 2019 to $153 billion today. It is popular because it works pretty well, as a kind of monetary alternative.
Bitcoin and gold are not really competitors. They are completely different. If gold is a pretty good hammer, to hit the nail of Stable Currency Value, Bitcoin is not a better or worse hammer. It is more like a lemon meringue pie.
But, if you are wondering why an experienced hedge fund manager might be bullish on Bitcoin today, Lepard will give you an excellent list of arguments.
For now, gold-based stablecoins have not been very popular. They still look like Tether in 2019. Even Tether's own gold alternative, Tether Gold (XAUT), still has a sub-$1 billion market cap. But, since USDT Tether is linked to the US dollar, Tether's value would also fall, in some kind of 'Big Print' situation. Around that time, people might become more serious in their search for monetary alternatives that achieve the ideal of Stable Value. Neither Tether nor Bitcoin would qualify.
