Chainfeeds Introduction:
BitMEX founder ARTHUR HAYES wrote an article exploring the relationship between the cryptocurrency market and the macroeconomic background, as well as the impact of government policies on the market. He analyzed in detail the relationship between government bonds and gross domestic product (GDP), and how the government affects economic growth and inflation through printing money and debt.
Article Source:
https://cryptohayes.substack.com/p/left-curve
Article author:
Arthur Hayes (Founder of BitMEX)
View:
Arthur Hayes (Founder of BitMEX): A government will borrow money to do something it believes will generate long-term positive value without raising taxes. Let's talk about the economy at a macro level. The rate of economic growth in a particular nation state is its nominal GDP, which is composed of inflation and real growth. If the government wants to drive nominal GDP growth by running a budget deficit, it is natural and logical for investors to receive a return equal to the nominal GDP growth rate. The simplest way to do this is to compare the year-on-year nominal GDP growth rate with the yield on a 10-year government bond. The 10-year bond yield should be a market signal that gives us an idea of expectations for future nominal growth. When real yields are positive, government bonds are a good investment. The government is usually the most creditworthy borrower because it has a monopoly on violence. When citizens refuse to pay taxes, a bullet in the head or imprisonment can happen. When real yields are negative, government bonds are a bad investment. The trick for investors is to find assets outside the banking system that are growing faster than inflation. As you can see, after the deflationary shock of the 2008 global financial crisis, real yields turned from positive to negative. It briefly turned positive again due to the deflationary shock of the COVID-19 pandemic. The baby boomers decided to lock everyone up so they wouldn't die from the flu, and the economy tanked. A deflationary shock is when real yields spike because of a sharp drop in economic activity. Nominal GDP growth is directly affected by government spending. The U.S. government spends 23% of nominal GDP. This means the ruling party can print as much GDP as they want, as long as they are willing to borrow enough to meet the desired level of spending. GDP is now a political variable. The U.S. is following in the footsteps of the Chinese Communist Party. 【Original in English】
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