Substantial-Acadia-1 t1_iuic5cd wrote on October 31, 2022 at 3:35 PM

Is there more public debt now than the 1980s? Yes that’s true by a long shot.

https://fred.stlouisfed.org/series/GFDEBTN

But what about household debt? Yes, that too was considerably less in the 1980s.

https://www.federalreserve.gov/releases/z1/dataviz/z1/nonfinancial_debt/chart/

But wait, aren’t there other considerations besides debt when raising the Federal Funds Rate…such as well I don’t know, inflation and m2 money supply growth?

https://www.longtermtrends.net/m2-money-supply-vs-inflation/

The m2 money supply growth we have experienced is off the charts! Right now real interest rates are still well below the rate of inflation.

Can you find a time in history where a high level of inflation have been able to be curbed without raising the Funds Rate above the curve of inflation? You won’t be able to because such a time in history never existed.

Can you provide a source proving that the interaction of inflation and interest rates are more dependent upon debt in the economy? I have not been able to find anything to support this claim, in fact to my understanding, the outstanding debt in the economy when put under pressure of higher interest rates would remove liquidity in the form of dollar debt from system via-defaulted loans and fewer borrowers due to higher interest rates. This should function similarly to unemployment going up having a cooling effect of inflation because it would lead to a reduction of demand because less money would be available to be spent in the economy.

As far as I can tell your argument is that raising rates in a bigger pile of debt is a bigger number if the debt is bigger? Macroeconomic theories are incredibly complex so I would like to hear your logic a bit more.

nonasiandoctor OP t1_iuiej3f wrote on October 31, 2022 at 3:51 PM

The interest rate and inflation rate are related. But there is no magic saying that inflation only comes down when the interest rate is above the inflation rate.

There are many contributing factors to current inflation. Energy, the war in Ukraine, the m2 supply. If you were to overnight fix the supply chain issues we would see inflation drop. Part of inflation is too much money chasing too few goods. If magically you doubled the number of goods available ( real productivity increase) then inflation would subside somewhat.

MyBrilliantReality t1_iuju9id wrote on October 31, 2022 at 9:40 PM

I’m a little slow… but if too much money chasing too few goods leads to inflation, wouldn’t less money chasing the same few goods also reduce inflation?