The Relationship Between Bitcoin and Interest Rates is Breaking Down: Arthur Hayes

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By BitcoinWiki News

Key Takeaways:

– BTC/Bitcoin

– Political hostility towards austerity
– Increased deficits
– Issuance of more bonds by U.S. Treasury
– Interest payments to the wealthy
– Stimulated spending and nominal GDP growth
– Paradox: Fed’s rate hikes unintentionally fuel economic growth

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Summary of Quote

In this statement, Hayes explains that the combination of political hostility towards austerity measures and the increase in deficits prompts the U.S. Treasury to release more bonds. These additional bonds lead to interest payments to the wealthy, which in turn stimulate spending and nominal GDP growth. This creates a paradox where the Federal Reserve’s rate hikes unintentionally fuel economic growth.

Impact of Political Hostility and Austerity

The political hostility towards austerity measures has significant consequences. It leads to increased deficits as the government is reluctant to cut spending, resulting in a higher demand for capital. In response to this demand, the U.S. Treasury issues more bonds to finance the deficits.

Interest Payments and Stimulated Spending

The issuance of more bonds leads to interest payments to the wealthy. These individuals receive payments from the government based on the interest rates associated with the bonds they hold. These payments serve as additional income for the wealthy, which stimulates their spending. The increased spending then contributes to nominal GDP growth.

The Paradox of Fed’s Rate Hikes

The Federal Reserve decides to hike interest rates in an attempt to control inflation or curb excessive economic growth. However, due to the increased interest payments to the wealthy resulting from the bond issuance, the rate hikes inadvertently fuel economic growth. The additional income received by the wealthy from interest payments further stimulates their spending, leading to a paradoxical situation where the Federal Reserve’s actions unintentionally promote economic growth.

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