4 ms·

Because obviously increasing borrowing costs will raise the cost of doing business, which will mean businesses will pass that on by raising prices. Oh, wait, th

Because obviously increasing borrowing costs will raise the cost of doing business, which will mean businesses will pass that on by raising prices. Oh, wait, that's pro-inflationary... Well, I guess there is the bit that businesses striving to be efficient will try and trim the fat and lay off a bunch of employees, and those now unemployed will therefore be poorer and won't be able to afford to buy much. That, and making people give much more of their incomes to banks to service home loans will mean they don't have as much to spend. Funny how that works really, really well for bank shareholders...

IAmGraydon 4y ago
Ah, a conspiracy theorist who fancies themselves an economist, but doesn’t have a firm grasp on simple concepts like how increasing the cost of money quells demand. The world definitely needs more people like you.
- stephen_g 4y ago
  Not a conspiracy - the economists at central banks are just incompetent and beholden to junk theory, not intentionally malicious or controlling. There aren't "simple concepts like how increasing the cost of money quells demand" - that's linear, static thinking when the economy is a complex dynamic system.
  - jbay808 4y ago
    Just because "brakes slow a car down" is a prediction of a simple theory of an idealized car, doesn't mean that a more complete and nuanced theory will give a different prediction. Furthermore, interest rate policy is basically a single lever with "up" or "down" positions. There's not a lot of room for nuance in the policy, regardless of whether the theory that recommends that policy is simple or nuanced.
nyokodo 4y ago
> businesses will pass that on by raising prices Businesses can only successfully pass on the higher cost of inputs if there are more dollars available to bid after the higher prices. Each economic good is different in this regard but if capital is made more expensive then fewer dollars are chasing after those goods which is deflationary.
imtringued 4y ago
Well, the theory is that prices go up and consumers either refuse to spend or the money they spend goes into savings accounts via interest. In a hypothetical scenario where the Fed does QE and raising the interest rate it is actually possible for runaway (hyper)inflation to occur if the interest payments are made with borrowed money. That is how some hyperinflations happened in poorer countries. I have seen a paper where higher interest rates actually cause inflation under a variety of mathematic economic models which is kind of weird.
- sgerenser 4y ago
  Apparently the president of Turkey is convinced that it’s high rates that cause inflation. They’re cutting rates as inflation runs at 83%.

IAmGraydon 4y ago

Ah, a conspiracy theorist who fancies themselves an economist, but doesn’t have a firm grasp on simple concepts like how increasing the cost of money quells demand. The world definitely needs more people like you.

stephen_g 4y ago
Not a conspiracy - the economists at central banks are just incompetent and beholden to junk theory, not intentionally malicious or controlling. There aren't "simple concepts like how increasing the cost of money quells demand" - that's linear, static thinking when the economy is a complex dynamic system.
- jbay808 4y ago
  Just because "brakes slow a car down" is a prediction of a simple theory of an idealized car, doesn't mean that a more complete and nuanced theory will give a different prediction. Furthermore, interest rate policy is basically a single lever with "up" or "down" positions. There's not a lot of room for nuance in the policy, regardless of whether the theory that recommends that policy is simple or nuanced.

nyokodo 4y ago

> businesses will pass that on by raising prices Businesses can only successfully pass on the higher cost of inputs if there are more dollars available to bid after the higher prices. Each economic good is different in this regard but if capital is made more expensive then fewer dollars are chasing after those goods which is deflationary.

imtringued 4y ago

Well, the theory is that prices go up and consumers either refuse to spend or the money they spend goes into savings accounts via interest. In a hypothetical scenario where the Fed does QE and raising the interest rate it is actually possible for runaway (hyper)inflation to occur if the interest payments are made with borrowed money. That is how some hyperinflations happened in poorer countries. I have seen a paper where higher interest rates actually cause inflation under a variety of mathematic economic models which is kind of weird.

sgerenser 4y ago
Apparently the president of Turkey is convinced that it’s high rates that cause inflation. They’re cutting rates as inflation runs at 83%.