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.

Karadenizli 0mo 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.

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Discussion

Dr. Bitcoin, MD 0mo 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