this post was submitted on 10 Jul 2023
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What if soaring rates don't kill inflation? Central banks may be about to blow up the economy (www.abc.net.au)
submitted 1 year ago by assassinatedbyCIA to c/[email protected]
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I’m curious how long central bankers will let this go on for before they begrudgingly admit that they got it wrong. For the sake of those already made homeless, ill or dead from the current inflation I hope the central banks aren’t wrong so that their suffering wasn’t for nothing.

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[–] [email protected] 7 points 1 year ago (1 children)

Remember that relative to previous examples of elevated inflation, interest rates really aren't that low. Ask a boomer about the 80s and 90s -- ask them what a mortgage looked like back then. Double digit interest rates.

The bigger problem is that the entire world was following terrible economic practices for a decade. Interest rates near 0 and super lax lending standards meant tons of bubbles in particular in housing. that's one reason why so much housing is insanely expensive. Then, because the fundamentals of life like housing are so expensive, people need massive wages to live. Then, because people need massive wages, the price of everything goes way up.

[–] assassinatedbyCIA 16 points 1 year ago (1 children)

The thing is wages haven’t really gone up. They have a little in the past two years or so but, those increases have lagged inflation so they are in fact a real wage cut.

I do agree that the economic practices for the past decade have been terrible but, I think it just highlights the point that central banks have no idea what they are actually doing. Interest rates were at record lows following the GFC because globally growth was stagnant in advanced economies and inflation was low or non-existent. Now we just have to trust that they’re getting it right this time?

Finally, interest rates were much higher in the 80s and 90s but, asset prices hadn’t yet been hit by the aforementioned asset bubble were in right now. The effects of rate rises are likely similar or greater than the effect that occurred in the 80s/90s.

[–] [email protected] 8 points 1 year ago

Yeah, wages have been generally stagnant since the 1970s while per capita productivity has continued to rise.

The fact that the CPI around the world is a blatant lie doesn't help either. Anyone who doesn't have their butler buying groceries knows that.

So I agree that we shouldn't trust central banks to do the right thing. Even if you think raising interest rates is the right thing to do, they're almost certainly going to do the wrong thing along the way anyway because they don't work for us, they work for themselves, the governments, and the banks.