4 ms·
> This is the physical world equivalent of believing gravity makes things rise No, it isn't. At least it's not as clear cut as you want to make it look like wi
by berns 8y ago
> This is the physical world equivalent of believing gravity makes things rise
No, it isn't. At least it's not as clear cut as you want to make it look like with the hyperbole.
Higher interest rates have both deflationary and inflationary effects. The mainstream only acknowledges the short or medium term effect on borrowing and consumer spending. But interest rates are just another price of the economy. Higher interest rates also means higher costs for businesses. And they add to the government deficit, which is also inflationary.
Maybe Erdogan is looking at Argentina, where the current interest rate is above 45% and whatever anti-inflationary effect it could have had has long ago dissapeared.
- 0x8BADF00D 8y ago> Higher interest rates have both deflationary and inflationary effects. Higher interest rates by definition reduce the rate of money in circulation by encouraging saving over spending (higher cost to borrow money). Maybe in your mind that leads to deflation, but empirically it doesn’t.
- acchow 8y agoYour jump from "encouraging" to "by definition" is quite the significant leap. I'm not saying I believe higher interests causes inflation, but I believe your logic is flawed.
- graeme 8y agoCan you cite any credible economic expert who believes interest rates increase inflation or reduce the value of a currency? Argentina’s currency jumped after that interest rate hike, btw, and the inflation rate for 2018 has been lower than that of 2017. https://www.statista.com/statistics/316750/inflation-rate-in-argentina/ https://www.statista.com/statistics/316750/inflation-rate-in...
- berns 8y ago> inflation rate for 2018 has been lower than that of 2017 The inflation in 2017 was 25%. With a lot of luck in 2018 will be < 32%.
- cynicalkane 8y agoWe're specifically talking about interest rates as a monetary policy tool. Endogenous inflation is difficult to unpack, but it's generally agreed that the government can override endogenous inflation and set monetary policy within a fairly narrow band. In Western countries with reliable central banks, this is exactly what happens.