Posted 4/12/2019 10:43 (#7435177 - in reply to #7434900) Subject: RE: Bottom Line Losses of Some Companies in 1981
Nobody understands inflation to the degree it needs to be understood to control it because the causes of it are always in flux.
Clearly higher interest rates is price setting almost everything in the economy higher, the very definition of inflation is rising prices. And the higher rates result in more money creation if you believe in the quantity theory of money.
And the very low rates for an extended period after the financial crises resulted low or no inflation, just look at Japan on that one. This is exactly the opposite of what is widely believed about the relationship between inflation and interest rates.
Janet Yellen said strait to congress that inflation is not understood.
I believe higher taxes would do a better job of crushing inflation than higher interest rates, and deflation or low inflation could be handled by massive government deficits and tax cuts. This way everyone would know that high taxes would only be temporary. I don't know how to get them to test this idea, or the best way to implement it in a timely fashion, or to what degree. It would have to be a trial and error thing, with slow moves and a best guess policy which is what the FED is doing now with monetary policy anyway.