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So to fight inflation, we're going to increase expenses to drive up inflation so much that people simply cannot afford anything and the economy implodes?
I don't think increasing interest rates ever solves inflation. I think the feds just stubbornly keep raising rates until inflation naturally (or from other factors) subsides and they decide to take credit.
It worked in the early 80's. Certainly it makes financing big ticket items more expensive and less desirable.
That is idiotic to me. Let's solve the problem of things being unaffordable by making them even more unaffordable. Like hitting the patient in the head with a hammer to knock him out so he quits moving and the broken arm can begin to heal.
If diminished demand due to higher prices is what stops inflation, then there's no need to do anything at all. Do nothing and inflation itself will produce the same effect.
I encourage you to study history. Societies throughout man's time on this planet have thought they could increase money supply to infinity and finance their desires without negative effects. Roman empire, pre Nazi Germany, Zimbabwe, Turkey, Argentina and many others.
Nothing is "free" and every action has an opposite reaction. Left unchecked, inflation could render the dollar worthless. Do you want to see a weeks pay needed to buy a loaf of bread? It happened in Wiemar Germany in the 20's.
The governments of the world but in particular US, unleashed our current bout of inflation by flooding the world with Trillions of dollars. These trillions are (or were) chasing the same assets (Houses, stocks, vehicles etc). There is ZERO need for US gov't to spend like a drunken sailor. (The so called Inflation reduction act is a joke)
Now we have to pay for the party we had the last several years.
Everyone is saying raising interest rates keeps Americans from over consuming. Which in turn shutters stores then assembly lines, which then causes mass layoffs and massive unemployment. So this is all part of the plan to fix America?
Well I think that gets into the "how much" and "how quickly" of raising rates. Finding the balancing point between the extremes of allowing continued high inflation versus grinding businesses to a halt, mass unemployment, etc. I don't know if there's any way around businesses and individuals feeling some financial discomfort as things correct, it's an intrinsic and necessary part of the process. But hopefully it's more "I better hold off on buying that new car" and less "I'm going to have to live in my car".
I encourage you to study history. Societies throughout man's time on this planet have thought they could increase money supply to infinity and finance their desires without negative effects. Roman empire, pre Nazi Germany, Zimbabwe, Turkey, Argentina and many others.
Nothing is "free" and every action has an opposite reaction. Left unchecked, inflation could render the dollar worthless. Do you want to see a weeks pay needed to buy a loaf of bread? It happened in Wiemar Germany in the 20's.
A post WWI Germany is a ridiculous example. The trillions pumped into the economy in covid didn't even cover the trillions lost from the economy from shutdowns. The Feds never ended inflation with interest rates any more than the native Americans ended droughts with rain dances. But if you keep dancing, eventually it will rain and then you can declare that "it worked".
Interest rates were low for nearly 30 years and it didn't result in rapid inflation.
Because China absorbed our inflation. Name another era with 30 years low interest rates and low inflation. Never happened.
We went from $35 dollar levis to $8 Walmart jeans. That absorbs a lot of inflation.
All of the manufacturing that was done in Chinese sweat shops rather than with escalating US labor costs, absorbed the wage inflation we would have had at those low interest rates. US workers would have had more money to spend, causing inflation, causing a demand for higher wages. Rinse. Repeat.
China's GDP 2020 - $14.3 Trillion
China's GDP 1990 - $360 billion. Not even a billion dollars!
China's inflation rate was 25% in 1994, as they were massively gearing up manufacturing production previously done in America.
China absorbed most of America's inflation during that 30 year expansion.
The rest of the world bore the brunt of our inflation. Inflation is one of our exports.
That was mutually beneficial. For instance our inflation was tamed in part due to off shoring to China. (one reason we have more inflation now) And our purchases helped China emerge into the first world by encouraging their productivity. And through exchanging USD's for their goods. USD's that they needed on the global markets.
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