Interest rates

What forces a country like Canada or US to raise interest rates and put a stop to the insanity of debt fueled inflation?

Official response from submitted

Careful here: raising interest rates is a policy aimed in the current situation to prevent or forestall an inflation, one which has not yet materialized despite the last 8 years of dire warnings that it would. Given the failure of the Federal Reserve to foresee, forestall, or effectively to minimize the capitalist crash of 2008, it seems quite reasonable to be skeptical of how effective the Fed might be in the face of an inflation if the massive amounts of money injected into the global economy since 2008 were to turn toward buying goods and thereby drive up prices (inflation). Anxious people therefore want to get the jump on the problem by raising interest rates in advance of the inflation breaking out. The problem with that lan is that raising interest rates has immediate negative effects on demands for goods and services for everything (e.g. homes, cars, credit card purchases) whose costs are raised when interest rates rise. In short, capitalism's contradictions and the resulting problems for economic policy have pushed us into very bad economic straits with very problematical policy options....hence the hesitancy, gridlock, etc viewed in DC.

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  • commented 2016-11-15 11:38:30 -0500
    policy aimed in the current situation to prevent or forestall an inflation? Isn’t having rates at zero what has caused consumers to borrow and consume and or buy homes causing inflation in especially housing beyond all logic. IE a 500k house in Toronto 3 years ago they want 1.3 million fot? How is 200% increase in the cost of housing, not apart of the “inflation” equation and a 4% increase in the cost of eggs is really scary inflation and we should really becareful. Ppl because of zero inflation rates are spending 60 to 150 percent of their gross income which is the most worthless number to use as we never spend our gross we spend our net income to just house themselves? How is this not inflation, and what is the idea behind inflation being 2 percent or what ever, when its more like 200 percent! Wouldn’t increasing inflation cost us more to borrow money, causing the price of housing to not go into infinity and also make us want to save our money and deposit it to earn as opposed to just borrow and spend????
  • responded with submitted 2016-11-13 13:01:15 -0500
  • published this page in Ask Prof. Wolff 2016-11-11 17:50:59 -0500


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