Higher interest rates increase inflation

[Timsup2nothin]

The minimum payment doesn't create new money. It creates a demand for you to get someone else to borrow so that they'll give you enough to make your minimum payment.

The original $2000 was new money

I agree, technically. But for discussion of the inflationary pressure it creates that 'create 2000 dollars with commitment to create additional dollars every month forever' is different than the ordinary issuing of $2000 in treasury instruments.

 

[Hygro]

The Austrian definition of inflation = increased money supply is not necessarily a bad one. Eventually, one way or the other, money will enter the economy sooner or later. So you might want to think ahead and count that as inflation. Problem is that you don't know when it will be inflationary in the mainstream sense. It might just as well be that the economy grew enough while the money was stuck that it won't have an effect at all.

The Austrian definition changes inflation from of price to quantity and what use that is, I don't know. The Austrians certainly haven't made a good argument, because their problem with inflation is that there is inflation, even if prices don't change. But when you ask why that's a bad thing, they start referencing changing prices (and changing prices absent the mechanism that changed them! Even though those mechanisms are microeconomic which is what Austrian economics is!)

The Austrian definition of inflation was a mistake made back when some economists thought that the money supply defined the price level. Since price and quantity are not the same, this makes their definition unusable for discussing prices.

At which point "inflation is change in money supply" and "inflation is bad" become two completely unrelated axioms floating in space, unconnected to each other or particularly anything else in political economy.

 

[Cutlass]

Really? Increasing the amount of money in circulation by definition is inflation.

Not by any definition used in economics or government.

 

[Cutlass]

The OP is making the point of a disinformation campaign being waged by the 1% and Wall St financiers which is in fact rent seeking by the ultra rich. That is, if the government acted as the OP wants, the rich would get much richer, and everyone else would get much poorer.

The concept has no independent existence outside of trying to make the rich richer by making the poor poorer.

 

[Tahuti]

The OP is making the point of a disinformation campaign being waged by the 1% and Wall St financiers which is in fact rent seeking by the ultra rich. That is, if the government acted as the OP wants, the rich would get much richer, and everyone else would get much poorer.

The concept has no independent existence outside of trying to make the rich richer by making the poor poorer.

Always assume good faith, Cutlass. You won't get any wiser by assuming otherwise from anyone who happens to disagree with you.

 

[Timsup2nothin]

Always assume good faith, Cutlass. You won't get any wiser by assuming otherwise from anyone who happens to disagree with you.

It is entirely possible for you (or anyone), in good faith, to present a point that has been crafted by others for their own benefit. It may well even be a point that does not benefit you that you have not recognized as such. For Cutlass to point out the (possible) origins of your point is also completely in keeping with good faith.

 

[Cutlass]

Always assume good faith, Cutlass. You won't get any wiser by assuming otherwise from anyone who happens to disagree with you.

I assume people act in their own interests when the subjects of money and power come up.

 

[Agent327]

Not by any definition used in economics or government.

You may need to check an economics textbook sometime... But since you obviously haven't:

1) Amount of money in circulation = x

2) amount of money in circulation = x + 1

Inflation. The amount of money in circulation has been inflated by + 1.

Can't make it any simpler than that. (And, where is my personal interest in pointing this out to you?)

 

[Hygro]

You may need to check an economics textbook sometime... But since you obviously haven't:

1) Amount of money in circulation = x

2) amount of money in circulation = x + 1

Inflation. The amount of money in circulation has been inflated by + 1.

Can't make it any simpler than that. (And, where is my personal interest in pointing this out to you?)

this is getting better and better.

Did you understand my reply to Kaiserguard when he charitably plays devil's advocate on your behalf?

 

[Cutlass]

You may need to check an economics textbook sometime... But since you obviously haven't:

1) Amount of money in circulation = x

2) amount of money in circulation = x + 1

Inflation. The amount of money in circulation has been inflated by + 1.

Can't make it any simpler than that. (And, where is my personal interest in pointing this out to you?)

Well, gee, I have a dozen econ textbooks on my shelf from when I was majoring in econ in college. So maybe you want to check one. Because not a one of them uses your definition. The money supply just isn't relevant to inflation. And no one in the economics profession has thought it did in a century now. So, to be the most charitable, you're using a 'definition' that anyone who actually studies economics discarded before your grandfather was born. The only people who you'll find using it now are those financiers and political operatives who want government to take money from labor and give it to the rich so that the rich don't have to work anymore.

What your definition fails to grasp is that changes in the money supply have nothing to do with changes in the prices people pay for things! And it is the prices people pay which is what they care about when talking about inflation.

 

[luiz]

The OP is making the point of a disinformation campaign being waged by the 1% and Wall St financiers which is in fact rent seeking by the ultra rich. That is, if the government acted as the OP wants, the rich would get much richer, and everyone else would get much poorer.

The concept has no independent existence outside of trying to make the rich richer by making the poor poorer.

How so? Wouldn't the rich want higher rates? The OP is making the case that higher rates may be bad for inflation, which is the whole reason people would raise them to begin with.

 

[Timsup2nothin]

Well, gee, I have a dozen econ textbooks on my shelf from when I was majoring in econ in college. So maybe you want to check one. Because not a one of them uses your definition. The money supply just isn't relevant to inflation. And no one in the economics profession has thought it did in a century now. So, to be the most charitable, you're using a 'definition' that anyone who actually studies economics discarded before your grandfather was born. The only people who you'll find using it now are those financiers and political operatives who want government to take money from labor and give it to the rich so that the rich don't have to work anymore.

What your definition fails to grasp is that changes in the money supply have nothing to do with changes in the prices people pay for things! And it is the prices people pay which is what they care about when talking about inflation.

Part of the instructions were omitted.

Step one: Go to the antique bookstore

THEN check an economics textbook.

 

[El_Machinae]

You may need to check an economics textbook sometime... But since you obviously haven't:

1) Amount of money in circulation = x

2) amount of money in circulation = x + 1

Inflation. The amount of money in circulation has been inflated by + 1.

Can't make it any simpler than that. (And, where is my personal interest in pointing this out to you?)

Inflation is the rise in prices. If more goods and services come online, the new money needn't trickle over to inflate the price of existing goods. Additionally, people save money and so needn't spend the money on old good to raise prices

 

[sophie]

You may need to check an economics textbook sometime... But since you obviously haven't:

I checked my economics textbook, it conflicts with your definition.

 

[Timsup2nothin]

I checked my economics textbook, it conflicts with your definition.

This would be because it was printed in your lifetime...or at least within a few decades of your lifetime.

 

[onejayhawk]

How so? Wouldn't the rich want higher rates? The OP is making the case that higher rates may be bad for inflation, which is the whole reason people would raise them to begin with.

Why would the rich want high interest rates? I suppose it yields more investment return, but it also makes personal and business borrowing more expensive. On balance, I would expect to to be preferred.

J

 

[El_Machinae]

Most rich are paper-rich. Then it's a seesaw. High interest drives up dividend yields. Low interest drives up stock prices. If you're cash rich, you want high interest rates. If you're stock rich, you want low rates.

 

[luiz]

Why would the rich want high interest rates? I suppose it yields more investment return, but it also makes personal and business borrowing more expensive. On balance, I would expect to to be preferred.

J

With very high interest rates you can pretty much just sit on your money, by lending to the government, and get richer by doing nothing. If you're an entrepreneur it sucks, but if you already have millions at the bank it's pretty awesome.

 

[Borachio]

Yes, but the return from investment for an entrepreneur is generally higher than the return on deposits.

So, someone interested in making the most from their money, and very few even rich people aren't, is going to be interested in leveraging even more from their money.

 

[onejayhawk]

With very high interest rates you can pretty much just sit on your money, by lending to the government, and get richer by doing nothing. If you're an entrepreneur it sucks, but if you already have millions at the bank it's pretty awesome.

This presupposes that lending is the preferred form of investment. While that is often true, purchasing rather than loaning is more normal. Institutions prefer the safety of loaning. Individuals prefer the growth of equity.

J