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Not an economist at all but, I fail to understand why "Trying to influence business growth with interest rates is the dumbest idea ever." while manipulate the s

Not an economist at all but, I fail to understand why "Trying to influence business growth with interest rates is the dumbest idea ever." while manipulate the same interests to reduce inflation is good/smart. In a world (especially Europe) where you don't control raw material prices or (an important chunk of) energy prices, how can reducing spending by having forced high cost of money possibly work without tanking the economy as a side effect? And if that's good or acceptable, why is not acceptable have businesses grow because of "free" lent money, especially if this helps improving life conditions for the people that work in those businesses? (which, I have to say, it's not always the case)

scotty79 3y ago
You control prices of everything by influencing how much money itself is worth through controling how much money you "print" which you do by controling interest rates. Economy has to be taken into account into how given level of interest rates influences inflation, but only as an input, never an output. The utility of keeping inflation in check is immense because it provides stable environment for the economy so that everyone can pretty much treat price as a proxy for value. If the inflation does weird things you can no longer know how much your investment is worth or will be really worth in the future. If you keep inflation in check it's fine if prices of some resources rise because it means their value increases. If price of pretty much everything goes up it's just a sign that you printed too much money, nothing more, nothing else. When you are using money supply to stimulate economy, sometimes you'll get benefit, sometimes you'll mess up horribly. So the only thing you are really doing is introducing more instability into the system which harms everybody.
Enginerrrd 3y ago
I think the issue is just that they kept rates too low for too long and failed to rein them in a bit when things were recovered from 2008. A little extra boom probably is a net positive long-term since it facilitates innovation and growth for a time. But if you selfishly leave the spigot of free money on for too long you get complacency and bubbles. The whole concept is intimately related to the keynesian idea of stimulus spending. But even keynes thought that the government needed to walk things back when things were booming.
- darkwater 3y ago
  Yeah, but then they are both "good ideas" (or bad ideas, depending on your PoV). Stimulation with cheap money, trim the fat with high interests. What I don't this is reasonable to say is that one is good and the other one is crazy.

scotty79 3y ago

You control prices of everything by influencing how much money itself is worth through controling how much money you "print" which you do by controling interest rates. Economy has to be taken into account into how given level of interest rates influences inflation, but only as an input, never an output. The utility of keeping inflation in check is immense because it provides stable environment for the economy so that everyone can pretty much treat price as a proxy for value. If the inflation does weird things you can no longer know how much your investment is worth or will be really worth in the future. If you keep inflation in check it's fine if prices of some resources rise because it means their value increases. If price of pretty much everything goes up it's just a sign that you printed too much money, nothing more, nothing else. When you are using money supply to stimulate economy, sometimes you'll get benefit, sometimes you'll mess up horribly. So the only thing you are really doing is introducing more instability into the system which harms everybody.

Enginerrrd 3y ago

I think the issue is just that they kept rates too low for too long and failed to rein them in a bit when things were recovered from 2008. A little extra boom probably is a net positive long-term since it facilitates innovation and growth for a time. But if you selfishly leave the spigot of free money on for too long you get complacency and bubbles. The whole concept is intimately related to the keynesian idea of stimulus spending. But even keynes thought that the government needed to walk things back when things were booming.

darkwater 3y ago
Yeah, but then they are both "good ideas" (or bad ideas, depending on your PoV). Stimulation with cheap money, trim the fat with high interests. What I don't this is reasonable to say is that one is good and the other one is crazy.