Comment by rayiner | Hacker News Reader

Comment by rayiner | Hacker News Reader

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That’s not some secret plan, that’s how policymakers historically address inflation: https://www.vox.com/future-perfect/2022/7/13/23188455/inflat...

> Higher interest rates generally reduce inflation by reducing spending, which in turn slows the economy and can lead to mass unemployment.

> One of the people who denounced Volcker’s moves was then-Senate Majority Leader Robert Byrd, who declared after Volcker announced his new effort in October 1979, “Attempting to control inflation or protect the dollar by throwing legions of people out of work and shutting down shifts in our factories and mines is a hopeless policy.“

The question is if the recession can be structured to disproportionately hit financialized and knowledge industries while sparing manufacturing.

> Higher interest rates generally reduce inflation by reducing spending, which in turn slows the economy and can lead to mass unemployment.

But higher interest rates aren't what the Whitehouse wants.

The article is about interest rates, but the relevant point here is that higher interest rates are a way of slowing the economy, which reduces demand, which in turn reduces inflation.

The White House wants to reduce prices without raising interest rates. So you need some other way of slowing down the economy. There’s lots of ways to do that, such as laying off federal workers.

That’s like saying amputation is a way to handle getting a paper cut. It’s in “not even wrong” territories of incorrectness.

Higher interest rates are about shifting investment priorities and loan rates. It increases the cost of lending, which results in people making choices about taking on risk and debt.

The reduction in loans being written, and the increase in interest being paid means that people start moving their money into savings, reducing the velocity of Money.

Laying off people from the government reduces the amount of money being used productively, but doesn’t do a thing to stop loans being written or money being printed.

It destroys the ability of the system to be efficient, resulting in more waste, and with more risk appetite + weaker regulators it results in the ability for people to break laws with impunity, resulting in captured or rent seeking markets.

This results in a recession, and a failed economy.

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