Pyramid Comment

This journal takes an alternative view on current affairs and other subjects. The approach is likely to be contentious and is arguably speculative. The content of any article is also a reminder of the status of those affairs at that date. All comments have been disabled. Any and all unsolicited or unauthorised links are absolutely disavowed.

Friday, June 17, 2011

Interest Rate Raise To Control Inflation

To control inflation it is argued that raising interest rates should help to reduce it. How can this work?

Raising interest rates?

This can only fuel inflation

Growth Requirement

The cost of almost everything inexorably increases. Pay for gainful work nowadays fails to keep pace with rising costs (inflation). Yet raising interest rates can only make the situation worse. Fuelling inflation by making the cost of (private individual's) borrowing more expensive. Businesses can raise their prices to offset the consequences of inflation and this creates self-sustainability. Business can flourish by justifying price rises on costs. But add (just) a little extra and nobody will notice. It's like amortisation, add a little on top of the interest on a debt and the

small extra grows and grows and grows and...

Take in a lot (12 bites of the cherry every year in most cases) and paying out a little (once a year) avoids amortisation happening in reverse. Lenders cannot lose. It's why amortisation is such an insidious monster.

Heat Or Eat
Credit Card Debt

The sliding door effect is quite clear: less ('in real terms' - dreadful cliché - DA) in and more (in brutal reality) out.

Is this another definition of less is more?

  • When comments 'suggest' (attempt to persuade) that the increase in VAT can help reduce 'the deficit inherited from the last government' (another annoying cliché still wheeled out more than a year after it first saw the light of day - DA), the fact is that this leaves less personal money (disposable income) available to fund any massive 'shortfall'. Raising VAT is totally inflationary: money cannot be created. Paying out more in tax just means there is less personal disposable income available to the
consumer/taxpayer/benefit recipient...

  • The people pay for the alleged deficit through raised (indirect) taxation. If VAT were a tax on 'luxury' consumer goods only, then any item purchased would attract the tax and this is the penalty of personal choice. When the scope extends to virtually everything and all services, it becomes an unavoidable (to most) tax. Consequently, the alleged 'deficit' and the ensuant 'justification' for raised taxes being an absolute necessity. Exercise the opportunity to increase control (of the majority) of people through their finances
    • Remember that this 'deficit' is only assumed to exist. Verification of the claim cannot be established so faith and trust in government are both absolute requirements.