deleted by creator
Bank profits inflate the money supply.
If banks hold 100% of the money and lend it all out x10 (fractional reserve) and earn 1% interest, the money supply is growing by 10% per year.
That’s inflation. All that money goes to the banks.
Edit: that’s 1% on top of whatever they have to pay for the money from the fed, so 7% rate plus 1%, or whatever.
That doesn’t even account for the stock market and other speculative devices.
When business and the wealthy class get richer, they want to get even RICHER. Prices rise. Which drives record profit, which makes rich people wealthier, which causes the cycle to repeat.
Raising interest rates is SUPPOSED to make people uncomfortable and stop spending. It’s not working yet, because literally EVERY INCENTIVE IN OUR SOCIETY is pushing people to spend spend spend.
There is no functional market force driving down housing costs, food costs, or education costs. Unchecked capitalism can’t work.
We just need proper incentive structures and regulation. But seeing as nobody has the guts to start figuring that out, the only lever we have is interest rates.
So they’ll keep going up until something breaks.
If banks hold 100% of the money and lend it all out x10 (fractional reserve) and earn 1% interest, the money supply is growing by 10% per year.
You’ve got it backwards.
Banks hold other people’s money and use it to issue loan. It’s the issuance of loans that creates money. The fractional reserve doesn’t magically multiply the money. It just (in a roundabout way) allows banks to loan up to that multiplier of money to people. But that only works if there’s people who want to borrow that money.
If a bank earns 1% interest, that doesn’t grow the money supply. It transfers money from the people that borrowed the money to the bank which then uses it to pay executives, shareholders and employees (in that order of priority).
The higher the interest rates, the less money people can afford the borrow, the more the money supply shrinks.
Banks HATE high federal reserve rates, because that means people don’t borrow as much which means they don’t make as much money.
When business and the wealthy class get richer, they want to get even RICHER. Prices rise. Which drives record profit, which makes rich people wealthier, which causes the cycle to repeat.
This can only happen in a poorly regulated environment where the rich setup monopolies or oligopolies. Otherwise they’d lose all their customers if they raise prices.
We just need proper incentive structures and regulation. But seeing as nobody has the guts to start figuring that out, the only lever we have is interest rates.
I think you’re just speaking for yourself here. Before you start spreading misinformation on the internet, maybe you should find the guts to actually figure out what you’re talking about.
High federal reserve rates can make things difficult for banks and that might be why the CEO of JP Morgan is butt hurt right now.
Want to deal with inflation? Raise interest rates.
Want to really improve the population’s purchasing power? Break up the monopolies and oligopolies.
One caveat, didn’t the fed remove reserve requirements during covid? I haven’t seen them added back. I think we still have zero reserve banking…
I actually don’t disagree with most of what you’re saying. I’m mostly pro-capitalist but anti-crony and anti-corruption which it sounds like you are too.
Maybe I’m just misunderstanding, so I’ll try and clarify:
If a bank earns 1% interest, that doesn’t grow the money supply.
X$ exists.
Banks loan out 10*X$ (or whatever).
The loaned money is debt and so doesn’t change anything because the cash and the liability counter each other.
The bank charges Y$ in interest.
After the debt is repaid, the bank has X+Y$
You’re saying that because the Y$ comes from somewhere, it’s not inflation. However as banks are profitable, they clearly have more money left after paying salaries, wages, costs, and dividends.
As long a the money that the bank has is growing, the amount they can lend is growing which means the pool of available money is growing.
It might not be “real” money (I’m probably misusing the term “money supply”) but it doesn’t change the fact that more “money” is available.
Raising interest rates means people borrow less which means banks make less money and grow slower. If this were to keep up eventually the banks would lose money and the amount of loans they could give out would decrease and the available money would decrease. Which might finally put an end to this rampant inflation.
You’re describing profit, not money supply.
Bank profits don’t cause inflation in the way you seem to say and bank profits are no different than any other company’s profits in terms of how they affect inflation.
One obvious solution that’ll never happen is simply getting rid of fractional reserve banking.
Make it do they have to have it, to be able to loan it
I don’t like all of the fuckery the banks get up to. But even I’m willing to admit that this is a Pandora’s box situation… I’m not sure we can ever go back.
It would be like trying to restore the gold standard. Just… How?
deleted by creator
Man / or woman ain’t wrong. System is designed to fail.
Only way out is to destroy it and start again. To repeat the cycle
Theyre raising rates because it is a way to limit the amount of money entering the system. Low rates have been feeding investers that have been driving up housing prices among other things. And the rate of inflation hasnt slowed down as much as it needs to. That suggests the amount of money the market requires is still significantly lower than the amount being added to the system.
I’m not sure what the other person’s talking about.
It’s really simple. Companies borrow money to do projects that they can’t currently afford. When interest rates are low, you can start a lot more projects. When interest rates are high… those projects have more risk and need more immediate returns before your interest payments start hurting your profits.
It’s kind of like 0% APR in the consumer world, “why buy later when I can buy now for basically free.”
Of course, all that money companies use to start projects doesn’t immediately create the business to do the work … so the businesses doing that work previously can charge more, and the price to get them to do any work increases. That last part is the inflation…
So… if you raise the interest rates, you kill the purchase orders, which lowers demand, and then lowers prices.
That’s also why raising rates too much is a scary prospect, because you can literally stall out the economy because instead of too many companies trying to start projects too few companies are starting projects and people start getting laid off because there’s not enough work to go around.
Or equivalently - to raise unemployment.
It’s a way to slow down money machine go burrrrr.
Biggest piece of shit in the world. Fucking hate that man.
Meanwhile in Argentina with 110% yearly inflation:
“Try me bro!”
Well if that crook is against it, I’m for it.
He’s a crook for sure but high interest rates really hurt the working class. Their mortgage payments go up etc…
Brazilian here, you guys doing 7% interest? (Meme reference may apply).
