Topic: The interconnected nature of economy:inflation, recession, energy, interest rate (Read 77 times)

I'm using the recent re-rise of oil price to $80 as an excuse to post some thoughts on the complexity of the economy.

I've seen people who focus too much on only one or two factors when they want to talk about economy and many other similar  topics like energy price, food situation and a lot more including bitcoin price. But the reality is that all these topics are very complex and are the result of lots of interconnected factors. Of course in certain cases the propaganda is to blame for some people thinking this way.
For example they want to bring down bitcoin price and we suddenly see how the propagandists start talking about how S&P500 has dumped and bitcoin's (non-existent) correlation with it which should dump bitcoin too!!! In fact you've probably already heard about this "correlation" specially in 2020 when the COVID recession created a dump.
We see even more propaganda in economy and energy situation, if you seen my other topics in this board you already know what I'm talking about (my favorite propaganda is "EU freezing" which they created themselves to have something to debunk pretending that's what energy crisis means LOL).

Here I'm selecting 4 factors which I believe are the main and important ones in the economy that also affect Bitcoin Price: Energy Price, Inflation, Recession and Interest Rates.
At the end I'll try to include other important factors that affect these 4 main ones while explaining the interconnected nature of all this.

		During the transitional phase from the Old World Order to the New World Order there will be lots of conflicts specially in proxy regions, rim-land, and resource rich regions. That has a significant effect on energy prices by destabilizing energy market, trade routes, etc. Examples are the NATO-Russia war, the booting of colonizers from Africa, the NATO-West Asian Resistance in Red Sea, Palestine, Iraq, Syria, etc. During the conflict between two sides (East vs. West) the war is not only armed conflict, it will be in resources markets too. Which shows itself as decisions like OPEC cutting supply, US releasing massive amounts of strategic reserves, Nord Stream being blown up, China going on an energy buying spree, etc. This has a significant effect on energy price by destabilizing energy supply. With rising energy prices, we see increased inflation
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		With increasing inflation, governments who can not think of any other solution! start increasing the interest rates to try and keep inflation down.
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		The goal of increased interest rates is to decrease liquidity since people with mortgages, businesses with loans, etc. will have to pay more money back to the banks. That means economy slows down (one of its side effects is smaller GDP or GDP growth) which means the "demand" decreases ergo inflation is controlled while the local fiat is artificially strengthened which is also good for the government's budget deficit. However, this comes at a cost and that cost is recession.
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		Recession will "shrink" the economy (eg. deindustrialization, small businesses shutting down, people spending less, etc.) the silver lining of recession is that it also decreases the demand for energy which starts lowering energy price. So increased recession leads to lower energy price. We've seen that over the past 2 years and is in fact one of the reasons why OPEC countries decrease their production since there is less demand (another reasons include wanting to keep the price up and also the conflict I mentioned in first row). This is also exactly what we saw over the past 20 days as oil price broke $80 resistance and dropped to nearly $70.
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		As one "chain" completes we can see effects of each factor on Bitcoin Price: I wouldn't say energy crisis itself has any direct effect on bitcoin price although it can affect mining. With increased inflation we always see people seeking investment (hedge against inflation) and bitcoin has always been a good choice ergo high inflation means increasing bitcoin price. We have seen this in many countries with high inflation, the most recent was Argentina where people on reddit claimed the bitcoin volume shot up to the moon as inflation rate reached 160%! Interest rates also directly affect bitcoin but in a negative way. With increased interest rates and as the government keeps borrowing money through very profitable "bonds", the money is sucked out of all other markets including bitcoin. So with higher interest rates bitcoin price suffers. Recession also has a negative effect on bitcoin as people would need to liquidate their assets to be able to pay their loans, cover the cost of living, etc. So higher recession means lower bitcoin price.
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		There are a lot of other factors affecting the 4 main ones which I've included in this last graph. I believe they are self-explanatory. Another point about all these graphs is that some relationships (the arrows) can work in both directions. For example increased recession can force the government to decrease interest rates which would then increase inflation.

This can hopefully address questions such as "If bitcoin is a hedge against inflation, why isn't it rising now that inflation is high?" as we can see all other factors affecting the price.
Hopefully it can also be an answer to those who read a silly one-line comments/propaganda somewhere saying "US released strategic oil reserves, oil will go to $10 and energy crisis is over" or "OPEC decreased production, oil will go to $200 and everyone will freeze"!!!

In any case I hope my simple visualization helped; Let me know which relationship you don't agree with and what other factors you think are also important.