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The US needs to cut interest rates “desperately”, analysts explain.
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Low interest rates stimulate investment in assets considered “risky.”
The financial markets are closely following the excessive growth of the public debt of the United States, which already exceeds the barrier of 35 trillion dollars. Some analysts assure that the situation could worsen in the coming months, something that could favor the price of Bitcoin (BTC).
According to data published by specialists from the financial newsletter The Kobeissi Letter, Net debt interest payments as a percentage of gross domestic product (GDP) will reach a record 4.6%.
“This would double World War II levels and exceed the historical highs seen in the 1990s. This figure is also much higher than the net interest expressed as a percentage of GDP in the 38 countries of the OECD (Organization for Cooperation and Development). Economic Development)”, the analysts indicated.
In other words, the largest portion of the economy of the main financial power will be allocated solely to cover the interests of the public debt. To put it in numbers, for every 100 dollars that the United States economy produces, 4.60 dollars will be to pay interest on the debt and not for social security, health, infrastructure and education programs. That is, a ceiling for growth in the country.
Relationship between interest payments on public debt and GDP of various countries, according to OECD estimates for 2025. Source: The Kobeissi Letter.
To graph the magnitude of the problem that the next administration of the United States government must face (there are presidential elections on November 5), the analysts highlighted that “countries with relatively high interest rates, such as Greece, Ireland, Spain and Portugal, reach ratios of interest/GDP that are half the size of the United States.” The economists of the financial bulletin also highlighted:
“To make matters worse, these forecasts assume lower interest rates over the next year. “The US government desperately needs to cut rates.”
The Kobeissi Letter, financial analysis newsletter.
The phrase refers to a possible cut in the interest rate that could boost the Federal Reserve (Fed) in November. Currently, it is 5% annually.
However, for the bulletin’s analysts, this measure has two sides. The first is that a new interest rate cut is necessary for the government of that country take steps to reduce debt growth.
The second aspect is that if the government refinances its debt at extremely low rates, it could lose fiscal discipline and accumulate even more debt, given that the interest would be easy to pay.
But, if in the future inflation in the United States rises again and that triggers an increase in interest rates, the cost of borrowing could become uncontrollable.
The public debt of the United States exceeds 35 trillion dollars. Fountain: The Kobeissi Letter.
In that framework, the International Monetary Fund (IMF) urged the authorities of the main financial power to take action on the matter to address the problem.
It was during the annual meeting of the organization and the World Bank in Washington, Vitor Gaspar, an IMF economist, expressed: “This cannot continue forever.” Likewise, the official mentioned the presidential elections in the United States and asked the future president to take decisive measures to avoid a global crisis.
As things stand, a rise in interest rates will have an impact throughout the world and could trigger a global crisis. Many countries have reserves in dollars and Any uncertainty could raise fears about its stability.
This lack of confidence in the dollar is already being seen in the movements of the central banks, which are accumulating gold in their reserves at record levels.
For that reason, a cut in interest rates could be one of the tools that the Fed has to address the continuous growth of federal debt.
Why is it good for bitcoin?
As CriptoNoticias has explained, a interest rate cut could whet the appetite of both small and large investors for the assets considered risk like stocks, bitcoin (BTC) and cryptocurrencies.
If the Fed decides to reduce interest rates again, the yield on Treasury bonds, considered “the safest investment in the world,” would decrease. Faced with this situation, many investors tend to move their capital towards bitcoin and other cryptocurrencies in search of higher returns.
Also, a cut in interest rates makes borrowing cheaper. This money can be used, for example, to invest in bitcoin, injecting liquidity into the market.
All this, which is bullish for bitcoin, is combined with seasonal factors related to bitcoin’s bullish-bearish cycles. On April 19, 2024, the halvingthe event that reduces the issuance of BTC by half, facilitating the rise in its price due to the demand caused by the shortage.
For this reason, it works as one of the arguments that could drive its price upwards and attract investors.
Historically, the bullish cycle for BTC price occurred between 6 and 12 months after the shortening event. Taking this background into account, The price of the digital currency could skyrocket soon.
On the Bitcoin Halving Cycle Profit indicator TradingViewit is observed that the bullish cycle could begin in the first days of January 2025 (area colored green). In the graph, the beginning of the reduction event is represented with a square and an orange dotted line, in green the beginning of the so-called optimal zone of highest profitability and, in red, the end of that period.
According to the indicator, the bullish period would begin in January 2025. Source: TradingView.
If this were to happen, BTC would be showing its strength as a store of value asset in times of financial crisis and would increase the “digital gold” narrative.
Digital currency has the potential to behave positively in adverse contexts for financial markets due to its inherent scarcity and decentralization, in addition to being different from fiat money, which is constantly devalued by the issuance of central banks.
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