CONTROLLING INFLATION WITH INTEREST RATES

A brief look at the logic of higher interest rates

We keep hearing it repeated that the only way to control inflation is with interest rates.

Elizabeth Warren recently debated the issue of controlling inflation with FED Chairman Jerome Powell. He steadfastly asserted that raising interest rates was the way to control inflation, while Warren insisted that it would hurt Americans.

She challenged him to cite when raising interest rates had not harmed Americans, and Powell could not offer an example.

While I totally agree with her diagnosis, her prescription, (increasing federal spending,) is as ridiculous as raising interest rates.

Let’s cipher for a moment. What happens when interest rates are increased?

As they increase, all manner of spending is stifled, including research, development, and human resources revenue.

This results in the reduction of products and services.

This contributes to the loss of employment and rising prices.

As people leave the workforce, incomes are lost, welfare rolls increase, (requiring higher federal spending on welfare,) and a loss in productivity.

This loss of productivity further contributes to higher prices. Higher prices contribute to higher taxes, ( an 8% sales tax on $100 is $8.00, while an 8% sales tax on $75 is only $6.00) These rising prices, and taxes cause a reduction in lifestyle and often lead to increased crime.

Increases in crime require more law enforcement, and legal costs, again compounding the cost to the taxpayer.

Increasing costs of government resources increase the tax burden on society, and round and round we go.

There is no way that raising interest rates is able to control inflation, especially since the true cause of inflation IS fiat currency.

The only to control inflation is to stop inflating the currency.

Masterminds can blow smoke as long as they want, but inflation is a mathematical issue, and it can only be addressed mathematically.

Devaluation of money is the cause, and revaluation is the cure.

Read my SubStack on Inflation.

God bless you, Dave

“Duty is ours, results are God’s” John Quincy Adams