Higher interest rates lower inflation by tossing people out of work so that they can’t afford to buy stuff. Things can get worse.
Higher interest rates lower inflation by tossing people out of work so that they can’t afford to buy stuff. Things can get worse.
Interest rates go up which results in increased revenue (and money) for the bank, which doesn’t have value backing it. In essence it increases the amount of dollars in the economy, lowering the value of the existing dollars within the economy.
People don’t just stop borrowing money when interest rates go up, especially when the economy is so bad people can’t afford to live on their pay.
Keep in mind what interest represents to the bank.
This goes against all the hard data we’ve got from the past 80 years of the Fed independently managing interest rates, but yeah dawg, I’m sure your vibes-based economic theory has finally cracked the code that Shadow Emperor JPow has been hiding from us, and all that rampant inflation from 0% interest rates is fake news.
You’d think, intuitively, that it works this way but you’re missing the key concept: fractional reserve banking.
The bank doesn’t take $10 from a savings account, loan it out, and then get something like $11 back, thus creating $1 from somewhere.
What the bank actually does is takes $10 from a savings account then magically creates $90 and loans out $100, because somehow they’re allowed to do this. This is fractional reserve banking. They only actually have a fraction of what they loan out.
Banks create money by giving out loans. When loans are more expensive, fewer are given, less loan money is created and the amount of total money in circulation (and inflation) are reduced.
Or at least that’s what I’ve read.