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The interest-price spiral nobody ever talks about.
by hgomersall 3y ago
The interest-price spiral nobody ever talks about.
- imtringued 3y agoThe amusing part is that depending on the economic model some do predict that there will be inflation in exact proportion to the interest rate. I am convinced that if you have a 100% free capital market with no coercion, then in theory the interest rate will just reflect capital scarcity and be a reward for possessing something many people want and that needs to be allocated to the highest bidder, but if it turns out that such a free market is a fantasy, then there is something to the interest causes inflation argument in real life simply because a responsible government that has the option to pay interest or not, could use the savings to pay off even more debt. The interest payments have to circulate once through the economy and this generates additional demand which can lead to inflation.
- hgomersall 3y agoIn truth, nobody has any idea how interest rates affect inflation. It's a combination of dogma, wishful thinking and a lack of options that lead to the central banks using monetary policy to try to reduce inflation. The central banks should never have been made "independent" let alone given the responsibility of controlling inflation. It's a political cop-out.