We Can’t Stop Inflation without crashing the economy

As of right now we are sitting at 6.5% inflation. The only way to stop run away inflation is to increase interest rates at a rate that is HIGHER than the inflation rate.

Which means unless we raise interest rates to at least 8%, it will have little to no effect on inflation.

Look at the 1970s. We were forced to raise interest rates to 20% because inflation was 15%. If we calculate inflation the same way we calculated inflation in the 1970’s, we are closer to 16% inflation and climbing. Which means the only way we are going to be able to stop it is to raise interest rates to 20+%.

If we raise interest rates even to 5%, the market will tank. If we raise it to 20% it will be a crash the likes of which we have never seen.

And if we do not do so, we will devolve into hyperinflation and then we are ****ed.

 

interest rates and tax rates are tools used to control inflation. only a republican could impose wage and price controls. how would you control inflation?

 

...and that's why it was so important, until this administration, to keep inflation under control. I don't disagree with your thesis. I think at some point the FED is going to do just that; push up interest rates.

 

It was high but I could claim interest as a deduction

 

Not any more.

 

it stopped in the 70's I think

 

Yep, because it was THAT important to keep inflation under control, Trump continuously pushed the Fed chair, Powell, who Trump appointed, to lower interest rates, to not impede the magical Trump economy. Inflation must have been REALLY on Trump's mind, also when he instated his tariffs. NONE of Trump's policies helped to curb inflation, including his tax cuts, which generated more free money in people's pockets for the same amount of goods to chase. Now, we are paying the price.

 

I don’t think that this inflation will be curbed by interest rates alone, this method may have an effect on the rich spending money but I don’t think that’s where our problem is at. I think we’re going to have to raise taxes on the poor to really slow it down.

 

You are correct that the stock market might tank but also investigate the reason for that...

Money chases a return. Right now EVERYONE basically has to be a speculator because you can't get a proper real return.

If you could simply have a savings account or buy bonds and make 10-15% that does mean that money leave the market to speculate on stocks, however it just seeks a more appropriate return that is also safer.

It used to cost quite a bit to borrow money. As a result you wouldn't engage in excessive leverage because paying off that borrowing goes against the return. Again this stops speculation. When borrowing money is basically free everyone speculates but also no one saves because there is no point. The savings earns you NOTHING.

 

So your theory is that this is Trump's inflation?

 

President Reagan took over President Carter's inflation and high interest rates, brought both under control, gave us several tax cuts, and gave us a great economy.

 

Stop buying goods and the prices would stablize.

 

I warned people that something like this would happen many years ago but no one listened, or it was "too complicated" to understand.

The Fed has strategies it can use to attempt to do things, but there are always trade-offs and side effects. There is no magic wand that exists to make the economy do whatever you want or ignore fundamental economic laws.

The way to stop inflation is to stop issuing new money.
But for the Fed to continue artificially holding down interest rates, they have to print more money.
(It's a bit more complicated than that but that's the basic gist)

(The Fed lends out money at subsidized low interest rates, so borrowers will borrow from that instead of borrowing from the private sector)
It's expensive to try to hold down interest rates. Who do you think pays for that?

Free market economists have pointed to this not being healthy.

 

The difference between what the Central Bank (i.e. "the Fed") is keeping interest rates at, and what interest rates would otherwise be in the natural market if not for that intervention from the Central Bank, dictates how expensive it is to hold down those interest rates and thus how much doing so will additionally contribute to inflation.

But if interest rates would normally otherwise be, say, 5%, and inflation is being created to pay for something else (say, interest on the national debt, or a war), then the interest rate will have to be that 5% plus the going rate of inflation. (say inflation were at 3%, then you would have an 8% basic interest rate in the economy)
This is if the Central Bank were not lending out money at subsidized interest rates to keep interest rates lower.

As you can surmise, there can easily be some circular effect here. A feedback loop. A small multiplier effect.

Central Bank holds interest rates down, that creates inflation, and now if the Central Bank wants to continue holding interest rates down to that same level, it gets more expensive, will create even more inflation than it did before.

 

That depends on what you mean by the market "tanking".

Maybe the economy right now is over-inflated?

The healthiest thing (from a laissez-faire free market perspective) is to get government to stop printing more money and stop trying to manipulate interest rates.

It is so wasteful.

Don't buy into the lie that government needs to set interest rates low for the economy to be healthy.

Low interest rates are more like a cup of coffee in the morning - it is not a long term solution to economic health and vibrancy.

 

No.
That was obviously playing politics.

Trump advocated or tried to push all sorts of positions that he did not believe in or knew would be bad for the long term health of the economy.
Why? Because there was political pressure to win, and his opposition would have done or advocated the exact same thing.

In other words, to say it one way, it was the irresponsibility of the Democrats that pushed him to back those same irresponsible positions.

Those who do not understand how he could be "pushed" do not understand how politics work. Yes, I say "pushed", virtually having no other choice.

It's actually politically dishonest or naive to claim that Trump supporting a Democrat-type policy means he actually personally believed in that policy or thought that type of policy would be good for America.

Democrats need to get that through their heads and stop perseverating "Trump said this, Trump wanted to do that".

 

Essentially Biden and the Dems crashed the economy with its successive bouts of $T hot money. The problem is too much government spending, the solution is less government spending. And we could also raise taxes: Several solutions:

• Undo all of Demented Biden's EOs and restore Trump's.
• Lift the holds on all pipelines and energy production, make the US energy independent again.
• Stop the push for electrification, our electric grid can't handle it, implement Dick Cheney's national energy infrastructure plan. He may be an a warmongering *******, but he knows energy.
• Allow students to bankrupt out of debt with half the charged off amount clawed back from the educational institutions who accepted the money while not ensuring they received an education that would allow them to pay off their loans.
• Freeze government spending at 99% of current levels until spending returns to Clinton levels as a percentage of the economy and wages for government workers is at 100% of the US median wage. Currently they average $120,000/yr. The US Median is 34,300/yr. Government workers make 3.5 TIMES what workers who pay their salaries make.
• End all tax exempt foundations, they all shall pay the same taxes as everyone else.
• Tax University endowment funds.

 

The US was not energy independent they were an exporter of oil and an importer of oil all through Trump's time as president.

 

Fake News

https://www.eia.gov › energyexplained › us-energy-facts › imports-and-exports.php

"The United States became a net total energy exporter in 2019 for the first time since 1952 and maintained that position in 2020."

Not anymore, Dementia Joe shut this down on day one. Dems want much higher energy prices for the American People and weird thing, that they actually managed to accomplish. Other than screwing things up though they are about as worthless as Mayor Pete.

Not to worry, we'll update the COVID tainted election results, gets some folks in there that love Americans rather than hate them, and get to work cleaning up this Biden/Dem mess. Rather than Dems partisan finger pointing I think America wants some solution focused folks representing them.

 

Incorrect. The only way to stop inflation is for government to stop spending money it doesn't have to spend. Raising interest rates just reduces demand. Inflation results in a lowered value of the currency and reducing demand doesn't fix it. At best it can reduce prices which doesn't restore the value of the dollar. Either the government follows a path of fiscal sanity or it will run us all into the ground.

 

Keep in mind the politicians in Washington are spending, spending, spending, money we don't have. And the printing presses are printing. printing, printing, money the politicians need for spending. So all these politicians and economist who come on TV and make all the rosy predictions are lying to us. The USA is heading downhill and the brakes aren't working. History tells us what will eventually happen.

 

And government is confused about how to fight inflation. Their approach is to raise interest rates. That just reduces demand and works against economic growth. The correct way to fight inflation is for government to stop spending money into existence. They need spend money they have or borrow it without monetizing the debt.

 

In the 1970s, the cure to inflation was to float the interest rates, not to raise them manually.

Paul Volcker’s Legacy, 30 Year Anniversary of Floating Rates
https://thebasispoint.com/paul-volkers-legacy-30-year-anniversary-of-floating-rates/
The Fed Funds Rate rose sharply in the months that followed this decision: it was close to 14% at the end of 1979, and reached past 19% in June 1981. The objective at the time was to fight massive inflation which averaged 14.6% from May 1979 to April 1980 (compared to -0.2% inflation from Oct 2008 to Oct 2009). It took two recessions—Jan-Aug 1980 and July 1981-Dec 1982—but by the end of the second one, the strategy of letting rates float higher worked to bring inflation below 4%.

 

The DNC is saving that for the next time ANY Republican wins the Presidential election

 

Nice try LOLOL