4 ms·
The goal of interest rate hikes is to cause money destruction through the banking system. But since depositors get a bailout if a bank fails due to these intere
by simple-thoughts 4y ago
The goal of interest rate hikes is to cause money destruction through the banking system. But since depositors get a bailout if a bank fails due to these interest rate hikes, won’t that counteract the goal? It seems the transmission mechanism for interest rates to control inflation may be broken.
- dragontamer 4y agoThe goal is to destroy money where it is safe to do so. Aka: the "soft landing". I think we can agree that destroying depositor money is going too far. That being said, we still have a long way to go, inflation is still 6%+, so more rate increases are needed... which will only cause further monetary destruction and other issues similar to SVB.
- simple-thoughts 4y agoDestroying money means a lot of people have to become poorer. So isn’t destroying money where it’s safe to do so just another way of saying the politically connected get bailouts while the rest don’t? It seems that this would be an optimal strategy from a cynical political authority I suppose. Still it makes me wonder if the transmission mechanism for interest rate hikes will work, since the politically connected are where most of the money is already.