Last Updated: 21 October 2022
Dylan LeClair is a young bitcoiner who has become a sensation with his on-chain and macroeconomic analyses. In a short time, LeClair amassed over 200,000 followers on Twitter and in a series of three posts, he explains why he believes the traditional financial system is heading for disaster.
– Soaring energy inputs have rapidly repriced discount rates higher
– The value of every asset on the planet is plummeting as a result
– This dynamic exacerbates a systemic asset/liability imbalance, as refinance rates soar
A global deleveraging is underway.
— Dylan LeClair 🟠 (@DylanLeClair_) October 20, 2022
What is going on?
According to Dylan LeClair, there are three relevant things going on right now that are shaking up the global financial system. First, he mentions energy prices going through the roof, thus giving interest rates a push. Everyone is currently finding it scary to lend money to each other and demanding higher interest rates, which of course is also due to the Federal Reserve’s interest rate hikes.
As a result, the value of just about every asset in the world except the US dollar has fallen this year. “This dynamic reinforces the systematic imbalance between assets and liabilities in the current financial system,” Dylan LeClair said. That systematic asset-debt imbalance means that global debt is currently four times larger than global income.
Debt as collateral
There is no collateral in the global financial system, according to Dylan LeClair, other than debt itself. By this, he refers in particular to government bonds, whose interest rates are currently through the roof. The problem with that is that it is becoming more difficult for parties to refinance. “With a debt-to-income ratio of 400 per cent combined with current interest rates, that means the whole financial system will soon be bankrupt,” Dylan LeClair said.
The analyst even speaks of a “doom loop” taking us further and further down. You have to imagine a problematic situation if your debt is four times your income and interest rates suddenly rise hard.
For example, if you have an income of 100 euros a year and there is a debt of 400 euros against it, you will have a problem if interest rates suddenly rise from 0 to 4 per cent. That is exactly what has happened now, with interest rates gobbling up an increasing share of global income. According to Dylan LeClair, interest rates do have to come down soon and that will be good for bitcoin in the long run.