The Breaking of the Global Economy with Nik Bhatia - WBD713

Nik Bhatia is the founder of ‘The Bitcoin Layer’ & author of
‘Layered Money’. This interview delves into Nik's work in the
Bitcoin industry and his background in trading interest rates. We
discuss the impact of low-interest rates on the economy, the
relationship between inflation and interest rates, and the impact
of central bank actions on markets. The conversation expands to
include global recessions, the Chinese economy, and the future of
Bitcoin.


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The unprecedented period of low-interest rates that followed the
2008-09 financial crisis was deemed a golden opportunity for
those leveraging debt. However, this environment hid many
significant dangers. Chief among them was the encouragement of
irrational investments. The problem comes, as we have seen, when
this period of low interest ends. A reasonable cost of capital
provides a check on such behaviour.


Interest rates are influenced by both the market and central
banks, with central banks often lagging behind market movements.
When the central bank raises rates, they are adjusting the target
rates for various lending markets. There is therefore an
interplay between central bank actions and market forces in
determining interest rates. In addition, there is feedback as
investors anticipate interest rate hikes and adjust their
investments accordingly.


As we have seen, central banks have used interest rates to temper
inflation. This is a crude tool and can risk tipping economies
into recession. Purchasing Managers' Indexes (PMIs) can be used
to analyse economic activity at the nation-state level; the PMIs
in Europe are all in contractionary territory, indicating a
deteriorating economy. The issue is, that in our globalised
economy, such problems leak into other economies, such as China.


The underlying issue in such a situation is the significant risks
associated with the traditional financial instruments of the fiat
economy. Financial institutions' liabilities are approaching
concerning levels. The problem is that such liabilities are
essentially infinite. This is why Bitcoin’s value tends to rise
when central banks implement easing measures, as many can see the
eventual unwinding of the fiat system. The question is how close
are we to this unwinding?


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Show
notes: https://www.whatbitcoindid.com/podcast/the-breaking-of-the-global-economy


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