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The CEO of Global Macro Investor and Real Vision Group, Raoul Pal, says the world is facing several economic outcomes in the wake of the coronavirus – and none of them are good.
In a new interview on the What Bitcoin Did podcast, the former Goldman Sachs hedge fund manager says governments are doing the right thing by firing up the printing press and injecting cash into the financial system. The real problem, he says, is what happens if the widespread economic fallout lasts longer than just a few months.
“In the Cayman Islands, I just got a call from the bank. They’ve just paused my mortgage for three months. Ok, great. They can’t pause it for six, because they’re going to be out of business. So my fear is after this period, what does the world look like? And if that’s the case, then it is going to be ongoing unemployment. So for many of our friends it’s going to be tough. It’s difficult. The governments will then try to borrow more money to try and help people. Again, it’s the right thing to do. The problem is, if you’re taking essentially all of the economic burden plus helping people with their debts and people with their mortgages, you’re basically taking all of the economic burden and all of the debts and putting it on the government balance sheet.
People in the UK remember they did this with the banks. But now they’re doing it with the credit markets, maybe the equity markets, maybe the pension system, and the economic losses. The only way to fund that is by printing money, and if every country is doing it at the same time you’re going to create an environment where money is worth less. Now does that mean we get inflation? I think in a debt deflation, which is what this is, we don’t create inflation. But we create a situation where the purchasing power of money versus let’s say gold or Bitcoin, will go down.
And we will see a system where, and I think Japan gets to it, where it ends up buying all of its debt and putting it on the balance sheet of the bank, in which case currencies can collapse. That does look like that could be one element of hyperinflation or high, sustained inflation would be the collapse of currencies at the end of this.”
In this environment, Pal says he’s now allocating 25% of his liquid net cash to Bitcoin (BTC), despite the extreme volatility and risk involved with investing in the emerging asset.
“This is exactly why Bitcoin exists. This was the problem that it was built for to start with. In that world where the financial system is struggling, while the ability to make payments, to have a store of value and to record ownership are basically the three tenets of what Bitcoin and cryptocurrency and the blockchain overall does. And that’s a very reassuring thing, to know there is a plan B. Now maybe that doesn’t all happen. But my fear is for everybody, and this is talking to non-finance people – be really careful in assuming this goes away quickly.”
Pal says the best-case scenario is a return to economic normality in September or October. In the meantime, he’s turning to BTC, cash, physical gold, and looking for trading opportunities while trying to earn as much money as he can.
“All I know is there are several outcomes that are very bad. [One is] everything returns to normal. [Another is] a slightly u-shaped recovery and by September, October we’re seeing the back end of this is ok. Let’s use that as our base case. That’s fine. But we as humans have to plan for the worst case because we need to make sure we can survive it economically. I don’t know the outcome. My hunch is it goes on longer.”