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I've always had this cognitive dissonance as well. Especially the link between rising interest rates and lowered food prices. I always ask and get ignored. I

I've always had this cognitive dissonance as well. Especially the link between rising interest rates and lowered food prices. I always ask and get ignored. I suspect it's because that's all they can really do. They are a one trick pony.

karatinversion 4y ago
There used to be a joke that the model was raise interest rates -> construction projects become unprofitable and get cancelled -> construction workers cannot afford food, reducing demand -> lower prices
rightbyte 4y ago
Ye it is all baloney. Higher rates gives more money to those with piles of money. Low interest rates does the same but in form of loans. Neither sounds like they decrease inflation.
Rury 4y ago
Think about it like this. A lot of things are financed via credit/debt. For example, you buy a house, using a mortgage, which has an interest rate. Some people might be able to finance a $500k house, at 0% interest rate for 30 years. However, with certainty there are fewer people who are able to finance a $500k house, at 10% interest rate for 30 years, as this costs much more. This means, as interest rates rise, fewer people will be able to secure and offer $500k for a house. As fewer people are offering $500k for a house, sellers will struggle more to sell a house for $500k, and eventually, there even comes a point where prices are forced to drop. As for how high interest rates need to get and how long they are in place to cause a decrease in prices, is mostly a guessing game, but eventually it will cause an effect. Now, that said, initially people might try to raise their prices to offset the increase in financing costs, (and therefore adding to inflation like the parent post thought), but like I said, eventually there comes a point where they just won't find anyone who will buy their higher prices, because no one can afford those higher prices, and therefore prices must come down if transactions are to continue happening at all, and some transactions will surely continue to happen, as some money is better than no money, when you got a liability to pay. And this also applies to food prices, along with most everything, in very similar but indirectly complex ways, mainly because most transactions in the economy happen via credit, then with actual money/cash. Let alone the fact that all money originates via central bank loans.
- swamp40 4y ago
  I understand your first three paragraphs just fine. That makes perfect sense. The fed can easily crash housing prices. I can also see how they can crash any large purchases financed by credit: cars, machinery, etc. I can see how they can stop growth, how they can crash companies that have overextended. But I cannot follow how the prices of goods and services come down. I'm not even arguing that they don't come down, I just can't follow the logic.

karatinversion 4y ago

There used to be a joke that the model was raise interest rates -> construction projects become unprofitable and get cancelled -> construction workers cannot afford food, reducing demand -> lower prices

rightbyte 4y ago

Ye it is all baloney. Higher rates gives more money to those with piles of money. Low interest rates does the same but in form of loans. Neither sounds like they decrease inflation.

Rury 4y ago

Think about it like this. A lot of things are financed via credit/debt. For example, you buy a house, using a mortgage, which has an interest rate. Some people might be able to finance a $500k house, at 0% interest rate for 30 years. However, with certainty there are fewer people who are able to finance a $500k house, at 10% interest rate for 30 years, as this costs much more. This means, as interest rates rise, fewer people will be able to secure and offer $500k for a house. As fewer people are offering $500k for a house, sellers will struggle more to sell a house for $500k, and eventually, there even comes a point where prices are forced to drop. As for how high interest rates need to get and how long they are in place to cause a decrease in prices, is mostly a guessing game, but eventually it will cause an effect. Now, that said, initially people might try to raise their prices to offset the increase in financing costs, (and therefore adding to inflation like the parent post thought), but like I said, eventually there comes a point where they just won't find anyone who will buy their higher prices, because no one can afford those higher prices, and therefore prices must come down if transactions are to continue happening at all, and some transactions will surely continue to happen, as some money is better than no money, when you got a liability to pay. And this also applies to food prices, along with most everything, in very similar but indirectly complex ways, mainly because most transactions in the economy happen via credit, then with actual money/cash. Let alone the fact that all money originates via central bank loans.

swamp40 4y ago
I understand your first three paragraphs just fine. That makes perfect sense. The fed can easily crash housing prices. I can also see how they can crash any large purchases financed by credit: cars, machinery, etc. I can see how they can stop growth, how they can crash companies that have overextended. But I cannot follow how the prices of goods and services come down. I'm not even arguing that they don't come down, I just can't follow the logic.