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To: Graham Osborn who wrote (58513)	12/5/2016 6:55:57 PM
From: staring	Read Replies (1) \| Respond to of 78717

Well, the idea is simple. The monetary tightening transmission to the economy depends on the financial leverage of the economy itself. Therefore, the more debt you have in the economy, the faster is the transmission mechanism. Imagine the following simplistic example. An economy A's debt is 50% of GDP and an Economy B's debt is 100%. If you increase interest rates 1%, the economy A will have an annual incremental burden of 0.5%, that will negatively affect capital available to invest (besides making capital more expensive) and will lead to less money available for consumption. If the very same increase in interest rates happens to Economy B, the impact on the economy will be the double, restraining consumption even more. Therefore, the more an economy is levered, the faster is the monetary tightening effect, and the easier is to control inflation. On the other end, in this context it is way more difficult to control deflationary pressures in a sustainable way, because leverage is a long term burden... That's why I don't believe (in developed economies and in the current context) inflation can get out of control, even with Trump's policies. They may create some inflationary pressure in the short term, but once you tighten a bit, the economy will respond quickly, like in 2007 and 2008 (now even faster). So, in my view there will be a cap on how much interest rates will increase... More than 2% (short term interest rates) for more than one year seems to me very difficult to sustain...