Inflation and raising interest rates

[milanbenes]

Evening All,

this current inflation and raising interests


as far as I understand, in the past traditionally, inflation has been caused by everyone doing too well, too much money swishing around in the system, everyone having too much disposable income and Mr Market reacting to all this money swishing around and raising prices accordingly

the price rises therefore became inflation

the solution to this traditionally was to raise interest rates, reduce people's disposable money, reduce the amount of disposable money swishing around in the system, therefore reducing people's spending and therefore reducing the rate at which prices grow and therefore reducing inflation

fast forward to today...

today, yes we have prices rising and therefore inflation

but as far as I can see, prices are not rising because there's too much disposable money in the system and people are spending too much

prices are rising because raw materials and production prices are rising because....

the oil and commodities prices are rising

therefore the inflation we see today is not because people have too much disposable and are spending too much

which begs the question, how is raising interest rates going to reduce the inflation ?

it's simply going to put pressure on the economy, leaving people with no disposable income at all

whereas the root cause of the problem is the high oil and raw materials prices

can't the experts see this ?


or I am misunderstanding it ?

as far as I can see, raising interest rates is going to make things worse not better

what needs to be done is reduce the oil and raw materials prices


what do the resident experts think ?

Milan.

[shaunbhoy]

Evening All,

this current inflation and raising interests


as far as I understand, in the past traditionally, inflation has been caused by everyone doing too well, too much money swishing around in the system, everyone having too much disposable income and Mr Market reacting to all this money swishing around and raising prices accordingly

the price rises therefore became inflation

the solution to this traditionally was to raise interest rates, reduce people's disposable money, reduce the amount of disposable money swishing around in the system, therefore reducing people's spending and therefore reducing the rate at which prices grow and therefore reducing inflation

fast forward to today...

today, yes we have prices rising and therefore inflation

but as far as I can see, prices are not rising because there's too much disposable money in the system and people are spending too much

prices are rising because raw materials and production prices are rising because....

the oil and commodities prices are rising

therefore the inflation we see today is not because people have too much disposable and are spending too much

which begs the question, how is raising interest rates going to reduce the inflation ?

it's simply going to put pressure on the economy, leaving people with no disposable income at all

whereas the root cause of the problem is the high oil and raw materials prices

can't the experts see this ?


or I am misunderstanding it ?

as far as I can see, raising interest rates is going to make things worse not better

what needs to be done is reduce the oil and raw materials priceswhat do the resident experts think ?

Milan.

Odd as it may seem, I agree with most of what you say there milan. But the last thing we need at the moment is another war.

[Churchill]

Odd as it may seem, I agree with most of what you say there milan. But the last thing we need at the moment is another war.

We do need a war in the old fashioned sense.

Less unemployment and when we do win we get to keep what we've won. Never mind all this "global stabilisation" bollocks and feeding democracy to the great unwashed.

Get in there, kill a few of the natives and enjoy the spoils.

[shaunbhoy]

Get in there, kill a few of the natives and enjoy the spoils.

A tried and tested method it has to be said.
I say we start with France, and work our way up to more formidable military opponents like Andorra!!

[scooterscot]

whereas the root cause of the problem is the high oil and raw materials prices

what needs to be done is reduce the oil and raw materials prices

The root cause of the problem is our lack of ability to save when times are good. By doing this we are protected, to a degree, from future runaway inflation. If inflation continues to run away then we burn some of our cash rather than printing it. But since we din't save we're all going to pay.

If a material not ours is in demand we utterly no say or right to control it's price.

The rest of the world is unlikely to wait for Britain while the recovery gets underway, which is why I'm earning in euro disney notes.

[AtW]

A tried and tested method it has to be said.
I say we start with France, and work our way up to more formidable military opponents like Andorra!!

The French have kept their own independent nuclear capability - I don't hear as much as from them about cutting their conventional military capability as well.

[shaunbhoy]

I don't hear as much as from them about cutting their conventional military capability as well.

You mean the White Flag factory outside of Rennes?

[AtW]

You mean the White Flag factory outside of Rennes?

I think recent history is more relevant to current events.

[d000hg]

Maybe a war with Scotland. Then our formidable CUK military men can put their money where their mouths are.

[DimPrawn]

the solution to this traditionally was to raise interest rates, reduce people's disposable money, reduce the amount of disposable money swishing around in the system, therefore reducing people's spending and therefore reducing the rate at which prices grow and therefore reducing inflation

It's the same issue now.

Why do you think raw material prices are rising? Cheap money that has been flooded into the hands of large investment banks which is now finding its way into commodities.

This cheap money is the result of banks being able to borrow from central governments almost at zero cost.

Raising interest rates makes money worth more (increases its value) and reduces the flows of easy money into almost every asset class.

So, yes, raising interest rates sharply will cause oil and other raw materials to fall in price.

HTH BIDI.