How Cheap Credit Distorts Money with Joe Consorti

 
 

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“The rates have been locked at 1, 2, or 3%...that’s completely distorted the way that people allocate capital; whether it’s human capital or it’s physical capital, they’ve gone ahead and done things specifically because the money is essentially free, rather than pursuing them because they’ll provide a real economic value.”
— Joe Consorti

SHOW DESCRIPTION

Joe Consorti is a Market Analyst at The Bitcoin Layer. In this interview, we discuss Austrian economics, Credit Suisse & the risk of large scale defaults, price distortions and how Bitcoin fixes this.

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When faced with economic turmoil, central banks have a few tools they can turn to, one of which is interest rates. Since interest rates are the price to borrow money, and prices are emergent, manipulating rates is an intentional distortion analogous to fixing prices. Rates instead should be a factor of the supply and demand of credit, risk of default, and a reflection of opportunity cost.

However, during the financial crisis in 2007/2008, the US federal reserve had little option but to step in and repeatedly cut rates. They did this in an attempt to prevent complete collapse and to restart the credit-seized economy. Rates went to basically zero (and even negative in some countries), and since 2008, we have been in an era of cheap credit.

Now, we are potentially in the midst of another financial crisis. Countries across the globe are battling with inflation issues for a raft of reasons, including supply-side constraints, excessive money printing during covid, and war in Europe causing energy shortages. To battle this, central banks are raising rates in an attempt to regain control.

So does cheap access to credit really boost the economy and stimulate growth, or has it prolonged an artificial bull market in equities, over-financialised assets, incentivised mal-investment, added to the growing wealth divide and played a key role in near double-digit inflation?

TIMESTAMPS

00:01:32: Introductions
00:03:03: Joe's background
00:08:00: Austrian Economics
00:10:26: Lightning Network
00:14:23: Lightning liquidity marketplaces
00:17:39: Taro on Lightning
00:25:21: Routing Taro assets
00:31:08: LN liquidity limitations
00:36:06: Credit Suisse, increasing risk of default, and scandal
00:50:08: Contagion risk to other banks, and market distortions
00:59:07: House prices, and demand destruction
01:05:50: Emerging funding stress
01:09:32: Bitcoin credit systems, and proof of reserves
01:18:34: Lightning risk curve
01:25:16: Final comments

 

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SHOW NOTES

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Mentioned in the interview:

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