The Fed must raise rates to fight inflation

1} Interest payments on Debt are rising faster than ever

It is higher than the military spending by US government, with such exorbitant amounts that need to be paid, the Fed needs to bring down the debt levels

But on the other hand they have INFLATION, and the way to cope up with inflation is to increase rates to bring down consumer demand, but then that means higher payments on the debt

Stuck b/w a ROCK and a HARD PLACE, right? Well let’s see

What does it mean for asset prices? Financial asset prices fall, and then.... so does tax revenue and hence something interesting might be happening that is difficult to understand

2} What are businesses up to?

Currently apart from a few standout tech stocks like Nvidia, most companies who make real stuff are struggling due to the rising cost and declining availability of credit, which has in turn driven down their stock prices

When it comes to the largest asset market in the world, bonds are poised to notch their 2nd straight year of losses on a total return basis.

With the broader stock and bond market still below 2021 highs, the government’s capital gains tax revenues are down sharply

3} While tax revenues are falling, Government spending increases

This is resulting in higher deficits. The more the government spends above its means, the greater its deficit

If more spending = higher deficit, and more spending also = higher nominal GDP growth, then higher deficit = higher nominal GDP growth

The US Treasury must issue more bonds at a higher rate of interest due to higher Fed policy rates.

This means rich savers in these banks haven’t had this much interest income in over 20 years. Rich savers consume more services with their interest income, which further boosts nominal GDP growth

Roughly 77% of US GDP is made up of services and people are still spending

Inflation becomes sticky because nominal GDP growth > government bond yields

Higher bond yields are not putting a damper on Govt spending because the US government is net-net profiting from this situation (Wow, who imagined that)

When the government funds itself at a rate lower than the growth generated by its debt, debt-to-GDP actually declines.

This is the exact same playbook the US government used after WW2 in order to pay down its massive domestic war debts.

Eventually, the Fed must raise rates to fight inflation.

The global cryptocurrency market cap today: $1.11 Trillion

Weekly change: 2.54% | Yearly change: -12.70%

Bitcoin (BTC) is the largest cryptocurrency with a market cap of $525 Billion.

Weekly change: 4.55% | YTD change: 61.97%

Another important metric is Bitcoin dominance which can be used as a rough indicator of the relative strength of Bitcoin versus other cryptocurrencies. A high Bitcoin dominance means that Bitcoin has a large market share and is potentially more influential in the overall cryptocurrency market and vice-versa.

Bitcoin dominance: Current Year: 49.08% | Last year (Sep 2022): 39.32%

The market sentiment has gone back to fear levels now expecting Sell Off this month

Note: The data used is based on metrics like Volatility, Surveys, Bitcoin Dominance, Social and Google Trends. Source: Coinstats

Let's have a look at Ethereum supply changes post its merge to a PoS blockchain from PoW.

The significance of the chart - understand how the supply of Ethereum is decreasing post the merge, which means “deflationary economics” for the Blockchain

Supply change since merge POS -296,446 ETH

The graph highlights POS issuance since the merge. Impressive numbers, look super bullish for ETH long term given the supply of ETH is not growing as before

Sino Global, Coinbase and Libra Alums Start $60 Million Web3 Fund Oak Grove Ventures will focus on early-stage investments in Web3, artificial intelligence and biotechnology.

What I Learned Managing a Crypto Fund for Five Years Jeff Dorman, chief investment officer at Arca, says crypto funds still need to find a balance between adopting professional Wall Street practices and taking advantage of crypto’s unique opportunities.

And now the funny part,

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DISCLAIMER: None of this is financial advice. This newsletter is strictly educational and is not investment advice or a solicitation to buy or sell any assets or to make any financial decisions. Please be careful and do your own research