[tensor]

This is a bit strange as presumably interest rates were raised in the first place to prevent inflation. Turning around and scolding the banks for doing what the government wanted in the first place seems counter productive.

Wouldn't redistributing these profits back to mortgage holders just undermine the raising of interest rates in the first place?

[sergiosgc]

Banks aren't directly profiting from higher interest rates. They are profiting from arbitraging the change. They are increasing loan rates before their capital costs increase. They could easily do the same on a downward slope.

[t0mas88]

There is debate about whether high interest rates work to solve inflation at all. But if you believe they do, it makes sense to want the banks to also pass those rates on to savings accounts instead of only milking the mortgage market. Because that would theoretically cause consumers to save more instead of spending the money.

But these high bank profits could indicate that the high rates have not been passed on to saving accounts.

One issue in Europe is that there is no easy way for consumers to access the high interest rates with their available cash. While the US government has an online portal for consumers to buy state debt directly.

[scotty79]

I'm not sure why people think higher interest rates reduce inflation by removing money from the economy.

Main reason high interest rates reduce inflation is that they disincentivise taking new loans and each new loan take is new money printed. So higher interest rates is just putting breaks on money printing.

[neilwilson]

That's the theory. The practice is somewhat different.

Money is a stock. It's the flow of transactions that matter for inflation, and that just increases - as we see from increased credit card lending, and increased trade credit in business (which is the commercial equivalent).

Higher rates just means higher prices, which then leads into higher wage demands.

There is no control until the money becomes 'dead' - saved by people who already have money.

Which funnily enough the banks were doing before they got taxed...

[imtringued]

You are absolutely correct but you are forgetting one thing. The entire system ratchets itself back to a zero money supply automatically as debts are repaid. This means the money supply shrinks overall if the interest rate is sufficiently high and the rate of repayment exceeds the rate of new loans being taken on. This is a very slow acting way of doing things and it can lead to debt deflation. If there was a way to avoid debt deflation, then total debt wouldn't have to rise permanently.

[scotty79]

What's wrong with debt deflation?

[gowld]

Sort of. Distributing the profits to bank shareholders doesn't help inflation.

To curb inflation, the windfall (interest rate) taxes should be burned.