What Really Going on with Interest Rates and Inflation

Physioprof simplifies it for us:

Shills for Wall Street gamblers said that, even though prices for shit that ordinary people need to survive are skyrocketing, prices for shit they can do without are not going up quite as fast, thus justifying actions by the Fed that are going to further increase the rate of skyrocketing price increases for the shit that ordinary people need to survive, while at the same time floating a massive cash infusion to the Wall Street gamblers to bet with so they can try to keep making the same obscene profits they had been, supported by, and ultimately ended by, their own purposeful courses of action that inflated, and then burst, the housing bubble and secondary pile-of-shit-in-a-pretty-dress bubble.

Clear enough, I think.

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6 Responses to What Really Going on with Interest Rates and Inflation

  1. JW Tan says:

    I think that article had many, many misconceptions. Physioprof admits he doesn’t know any basic economics, which in no way prevents him from commenting freely – a stick which many sciencebloggers beat creationists with.
    What you might call a “correct” analysis would be:
    Setting interest rates helps control certain components of inflation and helps set interest rate expectations. At the moment, what the Fed calls “core” inflation seems stable, although energy and food inflation are high and rising. Cutting interest rates when “core” inflation is stable reduces credit costs and puts more money into their hands every month, while not disrupting inflation expectations (and hence future inflation) too much. The Fed can’t do anything about energy or food, because both prices are determined on the global commodities market. Sure, Wall Street appreciates a rate cut. Note that the Fed hasn’t quite cut rates far enough to suit them, nor, in my estimation, is it likely to.

  2. JW Tan says:

    It’s 4 am here and I’m a little sleepy – of course the their in “Cutting interest rates… reduces credit costs and puts more money into their hands every month… ” means the public at large, not Wall Street.

  3. PhysioProf says:

    Did you read Stirling Newberry’s analysis, or are you just talking out your ass like I was?

  4. JW Tan says:

    I did. I think it’s mostly wrong, the man doesn’t understand what monetary policy is, he doesn’t understand free trade either, he draws what I think are erroneous linkages between energy markets and other phenomena, and worst of all, he adduces no proof.

  5. PhysioProf says:

    Would you care to address his arguments substantively, rather than merely conclusorily?

  6. “At the moment, what the Fed calls “core” inflation seems stable…”
    It “seems” stable because the government’s CPI figures are not done in the same fashion year-to-year… for instance, five years ago, they might have said that you could buy a steak for $X, but today they’ll say you can buy half a steak for $X when really it would cost $X x 2 to buy a whole steak– the CPI doesn’t go up that way. Real CPI is estimated to be about 12% a year, not the 2-3% the government says it is. Why would they fudge the numbers? They would have to pay more in Social Security each year if they came out with the true numbers and would be more bankrupt than they already are.
    “Cutting interest rates when “core” inflation is stable reduces credit costs and puts more money into their hands every month…”
    As I noted above, core inflation is not actually stable. Lowering interest rates is also done by printing more money, which decreases the value of all the dollars us hardworking Americans already have in the bank. That puts LESS money in your bank account and less in your hands, along with increasing the prices you pay at the grocery store.
    “Sure, Wall Street appreciates a rate cut.”
    Yes, because it’s a government freebie for them, while the poor and middle class suffer.
    Ron Paul is the only presidential candidate who talks about this stuff. He calls it the “inflation tax.”
    If you want to know the thoughts of an economist on this sort of stuff, read the best one who ever lived, Milton Friedman.

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