Will todays interest rate hike cause a Bitcoin pump? \ stacker news ~bitcoin

Will todays interest rate hike cause a Bitcoin pump?

120 sats \ 11 comments \ @BeardedSaintRef 27 Jul 2022 bitcoin

Interested in the recent history of the last interest hikes and it’s effect on Bitcoin…
Is it only Bitcoin that profits on these hikes?
How long will we see this rise if at all?

160 sats \ 8 replies \ @nerd2ninja 27 Jul 2022

Okay, this is gonna be a little long winded, but its important.

First off, just watch "How the Economic Machine Works" by Ray Dalio and you won't need to read any further.

Firstly, we need to talk about inflation. Inflation is often a point of contention on how its defined. If you're in the camp that only sees inflation as a general rise in prices, then you should understand when I say, debt is inflationary. If you're in the camp that believes that inflation is when money is created, then you believe that debt is not inflationary and only becomes inflation when it ultimately results in a bank bailout.

Okay so now interest rake hikes. An interest rake hike, is when interest rates increase. People are much less likely to take out debt at 17% and much more likely to take out debt at 2% interest rate for example.

When interest rates are low, people take out a lot of debt, which has a large inflationary effect (think the housing bubble of 2008)

Put more simply, prices go up, as people purchase using debt.

When interest rates are high, people don't want to take out debt. This means less people are spending, which results in less earnings for businesses which results in employment cuts and salary cuts etc etc.

Get rid of debt, and none of this happens in either direction and the economy is just stable. Which is a huge part of why I scream from the rooftops "Usury is a sin" all the time.

Now because this only effects the dollars price against goods and services (although with a bias for whatever people may prefer to use debt to purchase) it can be very helpful to use something else to price goods and services in, which is why I use "priced in gold": http://pricedingold.com/

But xe.com is a great site as well: https://www.xe.com/currencycharts/?from=BTC&to=XAU&view=1W

So please use these resources to stop thinking in terms of dollars and you will get much better market price signals. Prices are information in an economy, but that information is distorted in our FIAT world.

115 sats \ 6 replies \ @jp 27 Jul 2022

I am going to challenge you on a few key assumptions that you make:

If you're in the camp that believes that inflation is when money is created, then you believe that debt is not inflationary and only becomes inflation when it ultimately results in a bank bailout.

Please explain

People are much less likely to take out debt at 17% and much more likely to take out debt at 2% interest rate for example.

Absolute interest rate doesn't matter. You need to compare it against Inflation. I would take out a 17% Interest Loan if Inflation is, and expected to be, 100% YoY

Get rid of debt, and none of this happens in either direction and the economy is just stable.

Debt isn't necessarily a bad thing. Debt helps spur innovation and competition in markets. For example, Stackernews can exist due to Debt. The question is, in a fiat economy where savings rates < inflation rate the population is forced to invest their funds into any/all corners of the market; This leads to malinformed investments which cause bubbles. Debt isn't necessarily the enemy here...

210 sats \ 4 replies \ @nerd2ninja 27 Jul 2022

I thank you for giving my the opportunity to flesh out more details on this.

For the first question, the reason a person who assumes that inflation is when money is created, then believes that debt is not inflationary, is because they fundamentally believe that the debt will be paid off and the actual amount of money will be unchanging (the base money supply view). We of course know that the system of debt can never be paid off, because more credit/debt exists than exists in the base money supply. Now more forgiving economists would say that a 50% reserve requirement would make this an actual possibility, but in the third explanation I will go into further detail on why I don't agree with this assumption.

Now, for the second, while the strategy of taking out debt at an interest rate lower than that of inflation works for those who can afford it, it is important to recognize the psychology at play here. The average person is typically mind blown when you explain the concept you just did to them. The terms they usually think in, is "If my rent will increase over time, will I be able to pay that as well as the interest on my debt with my current salary". You see, increases in wages is the very last thing to increase during inflation, and usually only occurs due to absolute necessity. People generally do not assume that wages will increase as prices increase. (And anyway this is the reason the Federal Reserve touches interest rates in the first place so if you really disagree with it, you have to come up with your own explanations for why their interest rate changes have any impact on the economy at all) Please refer to the Ray Dalio video on "How to economic machine works" for an a really in depth explanation.

Now, for the third. Debt results in malinvestment. (Informational purposes only: https://en.wikipedia.org/wiki/Malinvestment) You see, I put money in a bank, the bank takes that money and issues debt, that debt allows people to spend more than they earn, which has an inflationary effect. Businesses see an increase in profits which leads to malinvestment as those businesses then use that earnings information, to make decisions on how to expand their business, but when it comes time to pay off that debt, spending goes down and so those decisions are not rewarded. A start up needs to be funded by investors, people who can see and believe in the vision of the business and decisions on expansion need to be based on actual the spending of actual earnings to be sustainable. The primary thing I would point to for why even a 50% reserve requirement is not enough to allow the debt system to be a sustainable model, is the glass Stegal act. (Informational purposes only: https://www.investopedia.com/ask/answers/050515/did-repeal-glasssteagall-act-contribute-2008-financial-crisis.asp). Any permission for custodians of any sort to exist will result in lobbying that allows them to lend those funds out (if they even care to do so legally in the first place) and then to lend out more and more of those funds as time goes on and they'd be enabled to do this, because you'd be giving them the money to do the lobbying with in the first place. Now, maybe you'd argue that a change in how the government works would prevent that from happening, but that seems much more uncertain and has much further reaching implications than simply transitioning away from debt entirely.

110 sats \ 2 replies \ @jp 27 Jul 2022

For the first question, the reason a person who assumes that inflation is when money is created, then believes that debt is not inflationary

Not sure if this is true. Assume $100 in deposit at a bank with a 1:10 Reserve Ratio means they can lend out $1,000 to individuals. These individuals pay back the interest at 5% annual interest rate which will yield the bank $1,050 (assuming all borrowers 1 year term); the bank can now lend out more money in their next lending cohort.

And anyway this is the reason the Federal Reserve touches interest rates in the first place so if you really disagree with it, you have to come up with your own explanations for why their interest rate changes have any impact on the economy at all

The reason why minor increases in interest rates cause such a shock is because all company valuations in the past decade have assumed lower borrowing costs. Increases in these borrowing costs make some business unviable, which will lead to layoffs. Higher leverage businesses = more sensitivity to interest rates.

Also, I think your response misses the overall point that interest rates alone aren't sufficient in determining how individuals & companies will response- you need to take into account real inflation.

You see, I put money in a bank, the bank takes that money and issues debt, that debt allows people to spend more than they earn, which has an inflationary effect.

Doesn't this counter your first quote where Debt wasn't considered inflationary? I am confused where you stand on this topic.

110 sats \ 1 reply \ @nerd2ninja 27 Jul 2022

For your first, you show the basic business model of how banks earn money, but you must understand that I'm speaking in terms of 3rd 4th and 5th order effects. This is commonly known as macro economics. What you have shown in microeconomics. The stuff that happens on the little scale.

For your second, I believe you're pointing out the aspect of ponzinomics which is rolling over debt or paying off debt with new debt. This is indeed another problem, but all of these different aspects of the economy all work together. Nothing in a vacuum.

For your third, I can see that a misunderstanding has happened here. Yes, there are people who believe that debt isn't inflationary, but I do not subscribe to that view. I am instead of the other view, the first I mentioned "If you're in the camp that only sees inflation as a general rise in prices, then you should understand when I say, debt is inflationary." I was only looking to explain things in the view that I know some other people have.

Now if you think I'm explaining this terribly, I probably am. Please, I encourage you to look at my primary sources for where I'm getting these ideas from in the first place to understand what I'm actually trying to say.

110 sats \ 0 replies \ @jp 27 Jul 2022

I understand both micro & macro; I am handle the entire lending operation for a fintech company. I've been a subscriber to both Ray Dalio and Milton Friedman.

I'll stop here because we're getting way off topic

15 sats \ 0 replies \ @frostdragon 28 Jul 2022

Wait, pause.

thank you for giving me the opportunity to flesh out more details on this.

Is this still the internet? Who the hell is this level headed and respectful? Can it possibly be? And calm and informative dialogue where two people don’t see eye to eye but have the intention of bettering each other’s perspectives without belittling anyone?

Why is this site so much better than anything lol?

Sorry, carry on

100 sats \ 0 replies \ @BeardedSaintRef OP 27 Jul 2022

I agree that debt isn’t the enemy. I believe debt will be the force (or solution)that drives digital currency like bitcoin and the lightning network….

36 sats \ 0 replies \ @BeardedSaintRef OP 27 Jul 2022

Thanks for breakdown, this was a very beneficial and thorough explanation. I appreciate the time and links for further explanation…I understand this time we live in is very complex in certain terms

110 sats \ 1 reply \ @sb 27 Jul 2022

Macro environment is still very bearish. If there is a pump, it'll be a short term relief rally. I'd guess that we'll be stuck in this rough chop, trading in range until something breaks (perhaps the housing market or default of some EU countries)

I saw some news yesterday that Italy is starting up the money printer with a stimulus bill again. I'd assume Biden follows suit in desperation before the US midterm elections in November. Interesting times ahead - great for stacking sats :)

0 sats \ 0 replies \ @BeardedSaintRef OP 27 Jul 2022

It’s funny how quickly we’ve (US) all of a sudden (or not so sudden) started following political and economic oligarchs in the EU….have we not learned our lesson?