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My notes from Gargoyle Theory by #@shakoist

  • Financial markets are our collective attempt to predict what we will want to consume in the future, and to fund production and technology to get us to our future consumption
  • Hayek claims interest rates that are too low results in more investment going to long-term projects relative to short-term projects.
  • It also leads to Malinvestment – investment in projects that are barely profitable and could quickly become unprofitable if rates rise; and to projects that do not match future consumption (plausible example NFTs)
    • The problem we observe is that once interest rates rise again, these malinvestments which made sense at lower rates, can become worthless.If you can borrow large sums of money at a very low rate, you can consider bankrolling projects that may not generate returns for a very long time. If the cost of money increases, this stops working. This can also permit investment in projects that are barely profitable if money is free. And then become unprofitable once money becomes expensive again.
  • Natural rate of inflation is one which keeps employment and output high, without causing inflation. (Mises)
    • This would minimize the “misery index” (sum of unemployment & inflation)
  • “Gargoyles” fill with rage when the link between the financial economy and the real economy become a farce, and then seek to restore order by taking their money back through inflation, lowering asset prices, and forcing people out of jobs.
    • Firms that have no right to live anger them, and need to be killed.
    • People either retiring early, or working in the wrong job, angers them.
    • ==> Gargoyles will not be happy till BTC, NFT, Web3 is all dead, because they see it as disconnected from fundamentals
    • What this should look like is layoffs, bankruptcies, and transitions to more productive jobs
    • ==> Rate of bankruptcies must rise (to please Gargoyles)
    • We’re seeing bankruptcies & layoffs in Crypto world, is this enough?