Last night, the US Federal Reserve (FED) announced that it would reduce interest rates again by 25 basis points. This puts the bandwidth of the interest between 1.5 and 1.75 percent.
New money, higher inflation
This means that it will be attractive to borrow money, which the FED believes is necessary to deal with the global economic slowdown. This new money must ensure higher inflation.
It is the third time this year that the Fed has lowered interest rates. The interest rate was also lowered in July and September. Bitcoin has only been in existence for ten years, and in all this time the interest has never been adjusted downwards until this year.
When can this be felt?
This news has a direct impact on the financial markets, but it will take a while before the real economy feels anything about it, if it does.
The S&P 500 rose slightly by 0.3% after the announcement, but it is not certain that this is due to the FED. The cryptomarkets do not seem to care much about the expected interest rate cut. The bitcoin and associates even yielded some value.
A reduction in the interest rate is used to simulate expenses and can also affect borrowing costs. They often give a boost to mortgage markets because there is an incentive to refinance or take out a new mortgage. Whether that is wise is a second, since the US already has a huge mortgage debt of 23 trillion dollars.
Similar to Europe
A similar pattern is also visible in the Netherlands. The European Central Bank has set itself an objective of getting and keeping inflation below just 2%.
The ECB has two resources for this, they can adjust interest rates and pump or raise money in the economy. Both means are not shunned.
Interest rate cuts have ensured that saving money in a savings account has become quite useless and that pensions yield less return. It has also made it cheaper to finance a house.
Learn from the past
The Hypotheekshop reports that large banks such as ING and ABN Amro have already lowered interest rates four times this year. Rabobank did that three times and SNS and Aegon twice.
This year, mortgage lenders have already made more interest rate adjustments than in the whole of 2018. There are even several providers that change interest rates two to three times a week.
In addition to the burden reduction, the value increase of the house. If you want to own a house, it is made attractive for you to borrow, but you have to borrow an increasingly higher amount. If interest rates are ever adjusted upwards again, this can cause problems for many people. In that regard, this is similar to the 2008 crisis.
Money depreciation as a second means
In addition to tinkering with interest rates, the ECB can also inject money into the economy. They mainly do this by buying up bonds. We already wrote extensively about this on Tuesday.
Last month, divorcing ECB president Mario Draghi decided to resume his buy-back program of sovereign and corporate debt. Columnist Koen Haegens of the Volkskrant wrote today that a total of 2,500 billion euros in bonds have already been purchased. He argues that it is time for the ECB to let go of their obsession for 2% or less.
Trump is happy
Back to America. The interest rate cut should sound like Trump in the ears (witness the tweet below, it does not sound like music, the interest must be much lower according to Trump). He has called on the Fed several times to lower interest rates. Trump even favors negative interest rates and deliberately wants to reduce the value of the dollar.
People are VERY disappointed in Jay Powell and the Federal Reserve. The Fed has called it wrong from the beginning, too fast, too slow. They are equally tightened in the beginning. Others are running circles around them and laughing all the way to the bank. Dollar & Rates are hurting …
– Donald J. Trump (@realDonaldTrump) October 31, 2019
Make no mistake, what happens in America has ripple effects worldwide. The ECB and China have not yet responded, but today the central bank of Japan has indicated that interest rates will be cut. They too have an inflation target of 2%. Japan does not hide the fact that they are buying ETFs to stimulate the economy, but this means does not seem to work anymore. They have bought up too many ETFs.
What does this mean for bitcoin? Or even better, what can bitcoin mean in this?
You could say that the more money there is, the more money is available for bitcoin and altcoins to increase in value. That is possible, but that is not important in this case.
The bigger picture is that there are now central banks that, whether or not under political pressure, pursue an arbitrary inflation rate. To achieve this, they are putting more and more citizens and companies in debt and at the same time their own currency is being valued. Euros and dollars become worth less as more money is injected. That new money is not yet in circulation in the real economy.
Bitcoin offers a way out of this rat race to the bottom. The crypto currency is decentralized and does not listen to any central banker or government. Bitcoin cannot be printed at will and there is a maximum offer. Inflation is known and transparent.
In addition, bitcoin is global and does not have to compete with other governments. Money depreciation does not exist with bitcoin.
Yes, the price can go up and down, but that is the choice of the market. Not from bankers and governments. There is no safer and better way to save value than in bitcoin.
Related posts:
Why do cryptocurrency Exist – Institutions 
Bitcoin and independent property rights 
NASDAQ on market manipulation: Everyone is now talking about regulating bitcoin and cryptocurrency 
Pilot Porsche on Ethereum blockchain to trace provenance materials 
Xfers from Singapore is going to use blockchain Zilliqa 
Make your own tokens with the Guarda wallet
