Subnostr

Perhaps this is a new paradox: interest rates rise whether there are too many or too few dollars.

I asked Grok: If there is a massive dollar shortage around the globe, what happens to interest rates?

Grok says interest rates will rise.

If the dollar suddenly devalues, grok says interest rates will rise.

If massive increase in dollars causes high inflation, Grok says interest rates will rise.

There must be more to this game…because it’s tempting to conclude that interest rates rise when there are too few and too many dollars.

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Discussion

Jimmythegent 3w ago

Also have to factor in that Central banks control the short term rates, but the market has more inpact on long term rates

Karadenizli 3w ago

I wouldn't call it control over the long term, more like a prediction market on the future fed decisions. If the fed released the rates for the next 20 years today, you would see it right away in the 10 year rate.

Karadenizli 3w ago

Conflating market rates with fiat fed rates.

If there is a shortage of dollars, market actors will pay more due to borrow due to low supply and high demand.

If there is too many dollars, inflation is going up, and the fed will raise rates to disincentivize borrowing, which is how new money is created.

This is because the fed isn't a market participant who lends based on market rates.

That being said, we never see the first scenario, because there is no dollar shortage ever. You can always borrow at a lower rate from the fed. This kinda can occur with the Eurodollar markets that don't have access to the fed rate, but at the end they can still eventually access the fed rate after paying a couple extra middlemen banks to launder the loans to them.

Dr. Bitcoin, MD 3w ago

Good call on conflation.

Doesn’t this imply then that the Fed will take the opposite action to the market for interest rates? Meaning that a free market would result in lower rates while the Fed raises interest rates and vice versa? Maybe that’s the point: fed rate moves opposite market rate to force market from equilibrium