enigma -
Isn't it true in some sense that higher interest rates are inflation, because they add to the cost of goods. It's kind of like giving the economy a small dose of inflation now, to innoculate it against a full-blown case later on. So the theory goes.
At what point does a "pre-emptive" strike at inflation become instead the recognition of an inevitable reality, ie that higher rates are inevitable because demand growth is leading to overborrowing, overinvestment, and an unsustainable pace of growth.
We are hearing that going forward we are threatened with a wage-price spiral. At the same time, as some have said, the demand for goods is being met by the ever cheaper costs of manufacturing them, due to the globalization of labor, improvements in industrial processes, and the apparent abundance of raw materials. And won't this plus higher wages continue to increase demand?
It's a strange world. We contemplate bumping rates to slow the economy because then it does not pay to borrow. In Japan, that has been accomplished by driving rates so low that it does not pay to lend.
Tom |
