It is commonly believed by economics scholars that inflation can be mitigated by raising interest rates. Is this possible? Shouldn’t we look a little closer, or should we just believe it at face value?
1) What happens when the supply of money is increased? If you have read any of my previous essays on inflation, you at least understand that I believe that ALL currency is devalued. The effects of this devaluation is exacerbated by the fact that, “more money will be chasing the same amount of goods and services.” You now have a bad situation made worse.
2) If interest rates are increased, what will be the resulting effects? Will this increase the goods, and/or services being chased by all this increased currency, or will it simply make it even more expensive, and thereby more difficult to do business? Does this increase in difficulty to execute trade increase the affordability of goods and services, or make it less affordable?
The most reliable effect of rising interest rates is to retard economic growth, and thereby the generation of wealth.
If we compare the increase of government spending as relating to increased currency, (inflation,) with high interest credit card activity, we find that another ill-effect is, the snowball effect.
If anyone, by taking advantage of credit opportunities, becomes encumbered by unsurmountable debt, they will find themselves in a situation that seems irreversible. Their debt increases as the interest on their spending makes the payment of these debts unobtainable. Therefore, only minimum payments can be made, and the rate of increase on the outstanding debt multiplies.
The only way to stop this downhill plunge is to STOP all spending not affordable to the spender. In other words, the credit card must be retired, and only cash payment can be made, as the debt is whittled down by faithful payments toward the outstanding interest, and principal.
If we compare this scenario to our Federal debt/economic situation, we find that our government’s spending vastly out-paces even the creation of fiat currency.
Here’s my question to you. If our government, with the help of the Federal Reserve, continues to spend trillions of dollars, not yet earned, on every conceivable line item, while not able to recover any ground on even the interest on the debt, (let alone that existing debt,) How can this exploding debt ever be paid?
If there is no hope of ever paying down our national debt, what will the end result be? Will our massive debt diminish, or will it overwhelm us, (or our children, and our children’s children?”
Can we consider these matters honestly, or will we continue to accept the lies of those that tell us that debt, and “printing money” are not a problem? Let’s remember that this is not the first time similar situations have existed.
In 1929, the bill came due in America for a huge misrepresentation of financial, and economic facts. Many Americans suffered terribly, loosing their livelihoods, and many, even their lives as a result. There are also many other historical examples, that you can read about in my previous writings.
I believe that it is high time that we stop listening to the “experts,” and begin to rely on common sense, and axiomatic truths.
God bless you, Dave