We might’ve (b)reached the “laugh threshold.”

During the pandemic, I was a staunch defender of modern monetary theory. Wait, let me back up already. I was a staunch defender of something we call modern monetary theory. In reality — and this is never, ever going to set in for most people — there’s nothing “theoretical” about MMT. It’s just a description of how federal government finance and spending already work for monetary sovereigns.

I’m not going to delve back into that. There’s no use. The vast majority of the macro-market crowd is determined not to concede the point (despite the point being self-evident such that it’s nearly tautological) and ironically, the names we most commonly associate with MMT don’t seem especially keen to concede it either, because doing so would suggest they’re not actually saying much, let alone doing any “theorizing.”

So, y’all can have that debate. I’m not interested in participating. What I am interested in, though, is the extent to which developed economies have pushed the envelope such that things which shouldn’t matter for hard-currency and quasi-hard currency issuers now do, because collectively, we’ve breached what I refer to as the “laugh threshold,” for lack of a more poignant way to communicate the problem.

Even if deficits don’t matter for hard-currency issuing monetary sovereigns and even if “debt” sold by those nations is better conceived as interest-bearing versions of the currency which are at least as useful for end users as they are “necessary” for the issuer (as is the case with US Treasurys), there’s a point beyond which reasonable people can’t be expected to overlook the circular nature of these funding schemes, nor the similarities with Ponzi dynamics.

When you introduce populism, political extremism more generally and legislative paralysis, you end up with a crisis of confidence in the fiat money. That’s manifesting in two ways this year. One is upward pressure on long-end, developed market bond yields (September’s respite notwithstanding) and the other’s demand for so-called “debasement” trades, which is to say old and new gold. “Old” gold is just regular gold. The shiny, sun-colored metal that men have harbored a murderous fascination with for centuries (millennia). “New” gold is Bitcoin.

Old gold has a date with $4,000 and it’s up damn near 50% this year so far. New gold has a date with — I don’t know, infinity maybe. Although it’s “only” gained ~33% this year, Bitcoin’s up hundreds of millions of percent (at least) since inception which, I should note, is why anyone who tells you they got in on the ground floor and held to this day is a liar. Read that again. Anyone who says that’s a liar to extent they claim to have put in a lot of money initially and stuck religiously to “HODL.”

Allow me a quick aside on that latter point. At the very, very beginning, $10,000 would’ve bought you a boatload of Bitcoin. If you’d held onto that entire boatload all the way up to $125,000 per Bitcoin, you wouldn’t be talking to normal people, nor would you live any sort of normal life. You’d be able to do anything you wanted anytime and anywhere you wanted to do it. Because you’d have the world’s largest fortune presumably on a collection of thumb drives. And it could be converted anonymously to any currency you needed from any location. You’d be a god-ghost. Like John Travolta in Swordfish before you find out he’s a spy-terrorist. (“He lives a life where nothing is beyond him. He takes what he wants, when he wants and disappears.”)

Anyway, three things (and these are just bullet points, they aren’t supposed to be complete sentences):

1. The US government shutdown, the deterioration in American rule of law and, more broadly, the society-wide institutional crisis which threatens the dissolution of the republic that issues the world’s reserve currency
2. France’s rolling government crisis which continued on Monday with yet another prime minister exit
3. The imminent ascendance of Sanae Takaichi, a pro-stimulus, hard-line, war hawk to the Japanese premiership

All of those things underscore the fiscal concerns pushing the developed world closer to the “laugh threshold.”

America’s disintegrating. I hate to be so blunt about it, but that’s where we are. Let me put it this way. I’d rather the US long bond for a trade (i.e., as a tactical play on a US recession over the next 12 to 18 months) than an investment. Some of you will scoff, but here it is: I don’t necessarily think that full return of principal is guaranteed on a 30-year US government bond. I think there’s a very real (if not very high) chance of a restructuring event between now and 2050.

France, it’s important to note, isn’t a monetary sovereign. They don’t issue their own currency. The use the euro. That means fiscal rectitude — adherence to “responsible” budgeting, defensible deficits, etc. — does matter. They have to address it, because fiscal discipline can theoretically be imposed upon them from without. Ask Greece about that.

That won’t happen to France because their political sway in the EU is a de facto veto on any sort of Greek-style ECB extortion. But the point is, France looks ungovernable right now and that isn’t tenable. Every few months a government collapses in Paris, and it’s impeding (to put it mildly) the country’s capacity to address fiscal concerns which the market, ratings agencies and, one assumes, the ECB, are concerned about.

What I’m concerned about for France is the long odds of success for any kind of coalition which isn’t beholden to the far-right or far-left. One way or another, France seems destined to be governed by the extremes, because the centrist route is blocked. If you end up in 2027 with the presidency and the legislature in the hands of one of the political poles, and Brussels pushes the fiscal discipline envelope too hard, you could start to hear “Frexit” rumblings again. And that’d be bad news for the euro.

As for Japan, investors are pondering in Takaichi a resurrected Shinzo Abe. That’s not necessarily a bad thing, ol’ Shinzo being the legend that he is. But the macro situation in Japan’s different now. They’re in a tough spot: The electorate doesn’t like the inflation that Abenomics worked so hard to engineer. “Healthy” inflation sounded good when it was an unfulfilled promise, but now that it’s real, people don’t want it.

There’s a decent chance that Takaichi piles on more fiscal stimulus and leans on the BoJ to back off the policy tightening. That’d be inflationary, and it speaks to the absurdist nature of Japan’s post-Ishiba trajectory. The country seems to be headed in the direction of fiscal stimulus to help alleviate the burden of inflation at the very real risk of creating more inflation.

These are the sorts of concerns driving the so-called “debasement trade” even as not everyone buying old and new gold can carry on at length about the country-specific idiosyncrasies which together back up the implicit, fundamental bull case for precious metals and a digital token which would cease to exist entirely in the absence of electricity and devices on which it can be stored and transferred.

Whether they know it or not, gold bulls (new and old) are all trading on the notion that the laugh threshold is breached across the developed world. And that with the possible exception of the franc, no fiat currency can be taken any semblance of serious anymore.

Of course, you still can’t do “regular,” day-to-day things with gold and Bitcoin, or at least not seamlessly, and not in most places. I can’t go get a haircut and pay in Bitcoin today. I can’t go buy a pack of chewing gum with gold. But like all slippery slopes, the road to fiat currency collapse is one down which it’s best not to take even a first step, lest you should look up six steps later and find yourself carrying a thumb drive to the barber shop or a burlap pouch of ingots to the convenience store.