|
|
|
|
|
|
by thethimble
1191 days ago
|
|
|
Even if your argument were true there would have to be a theoretical interest rate that minimizes inflation (how can a function increase in both directions but not have a minimum?). That said I think there’s reason to be skeptical about the link between rising rates implying more bonds sold - particularly as you consider other factors like creditworthiness. |
|
|
Some MMT theorists suspect rising rates is at least not price deflationary as is assumed by Keynesian monetary theory. And the basis is simple: An increase in debt interest has to be serviced by money creation. So the tool used to reduce bank lending creates money, and increasing bank lending creates money. Both roads lead to the money printer.
The following points are taken from https://www.reddit.com/r/mmt_economics/comments/wchq55/raisi...
1. When central banks raise interest rates, this means governments spend more on their interest payments. This translates into increased income for bondholders. Higher incomes lead to more consumer demand, pushing up prices. Similarly, banks benefit from higher interest payments from the Federal Reserve. In other words, the interest from the higher interest rates goes to someone in the economy, and their demand increases rather than decreasing.
2. Interest rates are a cost for businesses. When central banks raise interest rates, businesses pass this new cost on to consumers in the form of higher prices, which is inflation by definition.
3. Higher interest rates make it harder to start a business and harder to hold inventory. This reduces supply, leading to higher prices aka inflation.
4. Finally, MMT economists point to the fact that there is no empirical research at all showing that higher interest rates decrease inflation. In fact, the correlation runs in the opposite direction.