The problem is that for most people the "something" is basic items like food, groceries etc. I can't wait to buy these things. Big cooperation realized that and just raise prices higher and higher. This leads to more inflation, which makes the big cooperation raise prices again, in an everlasting vicious cycle. We can't stop that with raising interest rates, because people need to buy these items.
So you blame "corporate greed"? Would you also say it was "corporate kindness" when prices go down? For example, during Covid when oil companies were losing billions...
@@101fobster oh I see... so when prices come down it's due to "supply/demand". When prices go up its due to "corporate greed". Don't you think that is a bit of a one-sided argument?
In my city (Hong Kong) it seems like ever-hiking interest rates isn’t really bring products prices down. Property market has been hammered hard though. Not really sure why
I agree on slowing down spending everything right away, although making Interest rate higher is also a dangerous game: it slows downs production, investments, costly on mortgages (housing is the main spending post). This is also a recepe used for previous but different inflation crisis. It doesn't solve many of the new factors that generate the current inflation: -war in Ukraine.(making gas and oil more expensive, you need these in all steps of food production making food more expensive too, not just energy bill) -climate change (loss of crops), -climate transition (cotsly investments), -retiring boomers( less workforces), -devaluation of money. Inflation means your money worth less, it's not the just the price that are more expensive ,it's also your money that has less value. (since COVID Westen economies have spent a lot but produced less) - relying on other countries for cheap good production (when they stop producing, the products get more expensive) - adapting the salaries to inflation rate ( feeds it and continue the cycle). -Growing world population. There is less ressource for more demand. Playing with interest rates doesn't address all these problems and as long as we don't fix at least some of them the inflation will continue. Deflation is also a dangerous game, just like with inflation when everyone spends right away, the opposite happens with deflation , people stop spending and wait for prices to get even cheaper, therefore companies make less profit, stop hiring or layoff people and it creates a recession. Not everything but some things to address the current inflation: - play carefully with interest rates, making sure to not stop investment or make mortgage unaffordable, rise for a while but should drop again at the right time. - rise carefully salary for minimum wage and lower minum class so they can afford living and consuming , but ensure to not enter a cycle that will feed inflation. - heavily tax the profit of compagnies that make extreme benefits over inflation (energy companies now) and reinvest that in energy transition to diminish the dependency on oil and gas in every aspect of our life. (Nuclear energy is the cheapest and more safe than what people think, electrify transport of food and farms, replace gaz based ferilizer - ensure autonomy in food and industrial production. If you don't need to import it you are not dependant what happens elsewhere. (But not enough if you're depending on the energy to create these) - robotisation to replace the loss of work force , instead of building cheap goods in Asia , these could be built locally at the same cost with robotisation. Better for the environment since less transportation needed and bring back taxes locally. Immigrant, brings back new young workforce to replace retiring boomer. - the world population will continue to grow but the richer poorer countries will get the less their population will grow. - we will also have to live with climatic event that ruins crops more often so we need to finds ways to garentee food production despite these events. - Switzerland is a great exemple of controling inflation to keep it low and making most of deflation. The central bank prints a lot of money but own 90% of its own currency to protect its value by stopping the circulation when inflation is at the doorstep. The central bank also has a massive stronghold of gold , bonds, other currencies and makes a lot of benefit. Turkey with 80% inflation is a good exemple what happens if you refuse to adjust the Interest rates. However that alone would still not be enough. It's a different world, different causes therefore different solutions needed.
I know this video is from 2 years ago but this was absolutely perfect explanation and reading your responses to the comments has really educated me in this topic and changed my whole perspective. Thank you!
When there was a gold standard, inflation was so low that the little interest earned actually was a really profit and the vast majority of people did have a save and wait mentality, they would be like your great grandparents but spend today, pay tomorrow schemes from banks and high inflation changed all that in the 1980s .
The problem is our government wants people spending and not saving. They want us continually buying things that we can’t afford on credit. Spending makes the economy thrive which is a very intentional design that will never change. Good concept though!
Interest rates definitely do discourage non-essential spending, but this lack of spending can have ripple effects across the economy. It can cause a wave of businesses to collapse. Since many businesses operate using loans, it can trigger bank collapses as well. Additionally, interest rates have a profound effect on the secondary market for treasury bonds which can put more pressure on banks. We live in a world with very complex supply chains and complex financial inter-dependency. Raising interest rates constricts spending for both consumers and producers. If the operations of producers are constricted too much then it can lead to massive supply shortages which will more likely trigger hyperinflation. It is these many ripple effects of interest rates that make it aggressive to only raise rates by 0.5% per increase, which is why interest rates is only one tool used to control inflation. A large part of this most recent round of inflation was caused by supply shortages which were triggered by the global lock downs in response to the pandemic. Just the lock downs alone are enough to trigger inflation since they dramatically reduced the supply of goods and services. Preventing people from working and then giving income-replacement payments only increased the money supply which is now competing for fewer goods and services. Increasing the supply of goods and services is another tool that can be used to control inflation. One negative impact of raising interest rates is that it becomes more expensive to create new supplies for goods and services which only contribute to inflation, especially for essential goods. Prices going up is only piece of the issue. I prefer to view inflation in terms of the essential goods: food, clothing, shelter and transportation costs related specifically to gathering income or resources. According to one source: valuepenguin, the average household spent about 40% of their income just on food in the early 1900's. According to the same source it dropped to 30% by the 1950's and a mere 10% by 2013. Looking only at the dollar value cost of goods or services can be misleading. It's better to compare the cost of the essential goods to what percentage they take up in the average household budget. The demand on bear necessities is primarily influenced by population growth and interest rates don't necessarily stop population growth in the short-term so the demand for those types of products continue to rise while the production of those products are restricted during times of high interest rates. As usual, those with the lowest incomes would experience the worst effects. If the average household income in the US is $74k and the average tax rate is 13% then the average net income is $64380. If the average annual household expense on food is $13k then that is about 20.1% of the household budget. The suggestion in the video is simply to save money, benefiting from high interest rates, but this method only works with discretionary spending. The primary issue for most people are the essential goods. This is the fundamental part of the economy that is made worse by raising interest rates long term and cannot be helped by simply saving money.
Savings will earn interest as long as that money is lent to other who in turn has to payback with more interest. To me this is a problem of not having the right amount of money in the economy on the first place
Interest rates are the same for everybody but not all items inflate the same. Take technology. New tech is always high because it's better, newer and in limited supply. As time progresses, prices fall fast. Consumables are volatile such as the price of eggs being low when hens are plentiful and healthy but high when a bird flu kills them by the thousands (typical supply and demand). I prefer a different solution that gets to the root of the problem of high prices in general and that is ENERGY POLICY. Think about it. All goods require energy when harvested/mined, transported to a facility to be processed/assembled, transported to wholesale markets, transported to retail markets, and warehousing costs. Then customers must use energy to get to the products and energy to consume them (refrigerator/freezer for food, heat for cooking, outlets for appliances, etc...). Imagine how fast the costs of goods would drop if all energy prices dropped by half! I did grow up in the 70's and saw first hand how the cost of oil caused the prices of everything to inflate. The inflation caused workers to strike which caused prices to rise THANKS VERY MUCH JIMMY CARTER! Now it would be easy to just say DRILL, DRILL, DRILL but...that may not be so good for the environment. That's why everyone needs to put on their big boy pants and go full throttle to clean, safe nuclear power. France did it! They're 70% nuclear and going more nuclear every year. We can do nuclear cleaner, safer and cheaper than we did in the past using safer more plentiful fuels like thorium and molten salt. We can build modular reactors instead of the big expensive facilities of the past. We can recycle spent nuclear fuel (until Jimmy Carter ended it via executive order and Ronald Reagan reinstated it but by then it was too late). We should also not forget about hydroelectric and geothermal wherever possible. Solar, wind, tidal and biomass can also contribute. We will never replace oil and gas because we need it for jet fuel, lubricant, asphalt, plastics and cosmetics but we don't need to lean as hard on it as we did in the past. My point is that by lowering the costs of energy, you can reduce the cost of goods so that even if inflation is high, the prices are not.
When the deman goes up, the price goes up. The supply could either go up or down based on the risky situation or stability. In order to Controling inflation we also need to take a look at the stability of the current situation and the behavior of the market before we make any decision of increasing or decreasing the interest rate.
It goes hand in hand with basic supply and demand principals as well. Demand goes up (everyone buying/spending), and price will rise (given that supply is not also going up). And if demand for that good goes down (people saving), the price will be forced to go down (also given that supply does not go down). So you could explain it that way as well.
So why dont we make a month out of a year to saving? Make it frowned upon to spend money and make people feel bad for spending their money? The application of that would be hard to do, but it would allow us to easily make inflation to stop
What is the effect of inflation and interest being the same %? This sounds good as then spending and saving should be random and this currently sounds like a healthy economy to me. It also means that it will not be controlled and it will likely be net spending or saving still.
Another educational video. Thank you Mr. Clay for all you do for us, for putting your time and effort and sharing your knowledge with us!! May your family be blessed for many years to come. Happy new year! And.... Let's Go Brandon!!!!
Actually, the only strategy for preventing prices from increasing is to increase supply and increase competition. Unfortunately, the price mechanism does not clear markets for assets with an inelastic supply. The policy solution is to impose an annual tax on the holder such an asset equal to the asset's potential annual rental value. If this is done, there is no actual or imputed income stream to be capitalized by market forces into higher and higher prices. Owners of such assets with an inelastic supply (e.g., land and other natural assets) will either bring the asset to its highest, best use or sell to someone who will. Thus, the high annual tax prompts an increase in supply, which prompts an increase in competition. Recommended reading: University of California economics professor Mason Gaffney on taxation and macroeconomic theory.
In my opinion, fighting the inflation is one thing and fighting greedy is a different thing. First, I don’t believe in any inflation number announced by the government,( it does not match with real life inflation numbers). While government is taking about 7% inflation, in reality we see 20-25% inflation. Prices going up because we don’t fight greedy Same product that is been sold at A for example, u will find it at B for 20% cheaper, but people still want to buy it from A because B is 1 mile down the road further. By the end of the month u have realized that u have to reduce ur spending by 25% more to keep living with 5% inflation. So by the end the inflation # announced by the government is way different from the # in real life Still would love to discuss the inflation # with the government officials and find out how did they got that #
Great video! However, a common counter-point from economists against deflation is that it can stop the economic growth of a country because less people are able to consume because lower prices will lead to a lower demand. This leads to businesses earning less profit and being forced to lay-off employees or give lower wages which in turn leads to further lower demand and supply. I don't know if this is true though.
Would a save mentality lead to a vicious cycle where the interest rates being higher than the inflation rate will eventually kill businesses? How would a business deal with their expenditure (e.g materials, wages) but see their products not sell?
Products will sell, just at lower prices... this causes pain sure, but it's part of the process of weeding out those companies that weren't "actually" running a good business.
Exactly, small businesses will be hit the hardest, especially bc they will be competing with big ones who can take that blow. I think that could really mess with free market.
Quick question: Other than interest, would production incentives also help? For example, the Canadian government could invest 100s of millions into city infrastructure as long as cities increase single-family home construction by 40%? That why home prices go down?
Inflation is based upon money supply. So wouldn't decreasing the money supply, or rebasing the currency on some tangible asset(precious metals, oil, etc.) decrease inflation?
What about the time it takes to increase the interest rates in the sense that if, say, the expected inflation is 10 percent and the interest rate is 1 percent, why not suddenly increase the interest rate to 11 (or more) percent instead of slowly increasing it? In my country, the authorities deliberately chose to increase the interest rates very slowly so that banks are not affected. I don't know in what sense "affected" is used.
the government will never raise interest rates above the rate of inflation. the reason being is that every transaction in the economy is taxed. so if the economy slows down due to people saving and not spending the government brings in less tax dollars as well as job growth slows down . this would cause less income tax as well as sales taxes. this is why so many people are pouring into bitcoin. its because the government is predictable.
I like this as a principle. However what happens when, like in the UK currently, inflation is being driven by external factors such as war in Ukraine and supply issues for food manufacture and oil/gas? People still need to eat and heat their homes. Interest rate changes won't change this (no hate, this is a genuine point)
@@claytrader You do realize the war in Ukraine is at least part of the reason gas prices are up, right? Since planes use fuel, the price of food coming from other countries has also increased. The bottle neck in the supply chain because of COVID 19 is driving up prices, as well. This country wasn't equipped for a pandemic that stopped trading all at once, then quickly restarted after people got vaccinated. If COVID 19 didn't become so widespread, the inflation might not have existed until the Russian invasion of Ukraine started in Feb 2022.
Inflation only exists in a monetary economy. The only way to stop inflation is to revert back to a barter economy - and face an entirely new set of problems. Your solution doesn't stop inflation - it just creates idle resources to control prices in the short term. Given millions of those idle resources will be human it's hardly a solution to be proud of. A better solution would be to more effectively tax non-essential goods and services.
This is a theory. But you still have corporations who inflate their products, still becoming more rich while the poor who their products become more poor. The rich keep escaping taxes while we pay for it. Increase wages and penalize companies for inflating
Ok quick question, when u increased the intrest rate to 6%, slowly the inflammation falls to 3% (that's demand and supply principal right?, Like they are saving so there is no demand but production is still as the previous time) But let's say we shift it local industries and increase production of some main consumed items, which are the cause of it, will the inflation will get down that way (i know it sounds like a system controlled step, but will it work?)
exactly. It would encourage people to SAVE and buy stuff with cash instead of credit. When you don't have debt, you don't care what interest rates are.
How does putting up the interest rate help anybody but the rich? What is that going to do for the majority of the population with less than 4k, 3k, 2k in their bank account just trying to pay rent and buy food. Are they going to wait five years for 100 quid. Why cant prices be fixed? They could not inflate or deflate. Why not take inflation out of the equation?
Would I just save all my money until some force of nature makes it profitable for people as a whole to save, and by suffering through hard times, I'd have a leg up on my peers to buy? Seems kind of like gambling. **Despite my confusion, this is a very informative video!
ok so inflation is when you have to much money on the market... why can't you just phisically destry some cash to regulate the inflation ? The national bank could just toss few bilion dollars into a furnace and voila...
@@claytrader oh god damn it ! every state has a money reserve in the national bank, ok that money is not on the market but it has to come from somwhere right ? it is deposited there from taxes and shit ! If you would burn a part of it that would meen less money on the market right ? America actually did this in 1950
@@antifa86i35 you are correct in this sense. If the money wants to take some of the money it has collected from taxes and NOT USE IT ("burn"), that would help.
@@邓梓薇 donation would still hold the same amounth of money on the market! well you could donate it to other contries, so you would raise there infaltion ...
I like the simplicity, but I still don't get it. If we have 10% interest in savings accounts, and my mortgage goes up 8%, and my camper loan is 12%; what's the point of buying now? The item for more expensive anyway. The example only makes sense when you have available cash. Not when your disposable income is 125 each month. That's why most people have debts. The buy now pay later, distorts the buying power and gives no incentives for reasonable prices. Price isn't value although it is always treated like that. Economists think differently than middle class housewives.
It would not be more expensive if you're buying with cash. Can you imagine having 10% interest in your savings and how fast you could "save up" before buying something (and therefore NOT needing a car loan for example).
Wait what if people withdraw the money where would it come from would it come out of thin air or would they print the money wouldn’t that make it worse.wouldn’t it be better to take money from out of the country then bring it in to circulation.Thanks just saying.
So, although the validity of this video falls into fact. It only responds to one portion of economic inflation. Consumable items mark for a higher percentage of the populations income. In which there is no saving involved. Bc they are consumable. Other factors come into play, like transportation of goods, the energy sector, and capitalism. Capitalism reacts negatively to deflation. Therefore, monopolization plays a higher role in setting the price of consumable goods. Which is based on profit margin. So, I would state as a simple rebuddle. That inflation, although, can be affected by mentality. Also requires hardened government policy to nip inflation. I am curious if you could cover that as well. Im sure it would be appreciated by others as well as myself. What policies would need to be taken place in order to rain in inflation. Outside of just social behavior.
@claytrader ok, fair life can be busy, but your response is pourly executed then. That was your decision, which i clearly gave you a chance to rebuddle. I found your video lacking and simply non deserving of any respective economist. You fail to bring into an argument anything outside of stop buying things. Yeah, ok. Good job, Sesame Street. There is way more involved in the response to inflation. And simply based on your response. You don't agree with my premise, is sandlot at most. My response to that is if anyone is looking for advice on inflation, don't look here.
So you mean that if more people prefer to save their money into bank accounts, the demand for the goods will go down. Thus the price will go down, which means the price level will go down ( stop inflation)?
What happens if one person buys all the high inflated currency(say the rich people buys it)to have the majority of the supply what would the deflation happen if that person didn’t use it so it increases its value.
The more money available to spend the higher the inflation. And we (Govt) keep pumping money in so that's what you get. It's easy to say everyone should earn $20+ an hour as a living wage but then that monetary amount moves up as well for everyday costs. Everyone deserves an opportunity to earn as much as they can and there should be safeguards to protect those truly in need but the abuse of social services are crippling this Great Country. Just my 2 cents worth. Another good lesson Clay. Thanks
Thats all good and well but what also drives up inflation is people having too much credit. Credit help people spend on stuff they do not need. Get rid of credit cards.Buy only what you need.
That also means more money to spend idk why you're assuming all of it would suddenly be saved up. Especially with lower income brackets more saving is not what tends to happen
Senior Span, spending more money because you HAVE more money is way different than spending more money because prices are going up, so you are forced to...
@@seniorspam2453 because then people would have money to SAVE.. and when people have savings, they don't need the government to turn on the printing press to "help people" because those people already have savings... lowering taxes does not "create" more money out of thin air. THIS is the fact you are missing.
@@claytrader I never said lowering taxes creates money out of thin air. Yea, people have more money to save with tax cuts, but are they also have more money to spend, which would actually accelerate inflation. It's actually why proponents of tax cuts argue for it as a method of spurring economic activity... because it increases spending. Your argument that lowering taxes would reduce inflation, would only work if most of that extra income actually increased savings relative to spending, which is not what tends to happen, especially in a case where prices are already high and people need more of that income for consumption Your monetary analysis is on point: increase interest rates to incentivize saving and reduce inflation. Your fiscal analysis is not.
I don’t get how we know what inflation will be in a year. Don’t we only know how it is compared to the past. And how do you get the banks to want to pay people to hold their money which will make people want to save more.
@@claytrader in the example the person knew what interest would be a year from now to make their decision. Also banks have to be pretty certain that they will make more money by raising interest rates. Essentially they are borrowing from the people and expecting to make more than the interest they pay back. So doesn’t that mean these are just symptoms and not the actual problems? Wouldn’t the problem be more about economic outlook? They would have to be certain that they can pay out the interest later by lending that money at a higher rate today which is based on how people are who aren’t saving are willing to borrow as an investment that will make more later which means they believe there will be economic growth generally. So isn’t the real problem fixing the broken economy that is relying more and more on exporting jobs due to globalization, transnational corporations crushing small business creation, a lack of willingness of voters and politicians to work together to agree on and create new legislation for economic growth, etc.
@@claytrader I’m not an economist but it seemed too simple that all they had to do was raise the rates for savings. It seems the banks are reacting to other conditions and can’t just pick the rates but rather need the economic conditions to be right to do so.
in order to "raise the rates for savings", you need to raise the federal fund rate (which is what is being referred to here when saying, "raising interest rates")
but interest rates rises, companies would have hard times to pay its debt to the bank, and because people keep their money because of interest rates rise, businesses would suffer, because nobody would spend
@@claytrader so how can the bank give their customer interest if all the debitors go bankrupt because they cannot pay their principal and skyrocketed interest? And because business would bankrupt because interest rates rises, many would lost their jobs, without jobs people dont have money to spend to other businesses would dissapear, so how come interest rates is the solution if businesses close their activites or shops and people suffered because no jobs? Also Bank customer cannot get the interest they want because all businesses cannot pay their liabilities to the bank, as result of their primaty customer decide to save to the bank? How increase rates the best solution to fight inflations?
@@claytrader yes is not all, many finance industries may be can survives because of their own capital, but how about small - medium businesses? Restaurants, fishing, craft industries etc if those businesses had bank loan that suddenly bigger because of the interest rates rises, how they will manage to pay them if their daily customers dont spend their money to purchase good or services they provide in order to keep them in the bank for interest return? And since customers would spend less how the businesses would pay their obligations give customers bank their interest revenues?
@@tomster95 lots of businesses will fail... as needed.. bad choices as a business need to suffer consequences. That's how the system is SUPPOSED to work...
Well, I think the data disagrees with what this guy is saying. Relatively small increase in the prime interest rate has an effect on inflation. Why? Because when money is more expensive to borrow, companies slow hiring and capital purchases or lay people off. Less money chasing the same amount of goods means things go unsold. This creates a downward pressure on prices. Same thing with home starts except instead of it applying to companies, it applies to home buyers. Money is more expensive so people buy less expensive houses (or no houses) and this puts a downward pressure on home prices. Am I right? Not sure, but if a retired engineer understands economics better than this guy, that doesn’t make the retired engineer an economics genius, but it does say something about the presenter of this video.
@@claytrader Are you literally saying that because you can find a single instance of you being right that it proves that all the data agrees with you? Something tells me you were not a STEM major.
@@AndrewUnruh I'm an engineer, by degree. I've taken a few math classes. But that's irrelevant and an appeal to authority. This is a very basic math equation we're talking about. I'd also encourage you to consider the fact that, maybe... just maybe.. this "data" you are referring to is being manipulated a bit? Thanks for the thoughts and take care.
@@claytrader You're an engineer? My bad. I guess I assumed that an engineer wouldn't try to prove a general principal on the basis of a single observation. Just to be clear, I am not saying you are wrong, but I have a lot of doubt. Your analysis seems incomplete to me. Am I unrealistic to think that even small increases in loan rates would lead to less borrowing or that less borrowing would lead to a slowing of the economy?
@@AndrewUnruh it's not "MY" observation. It's a basic math equation and found in any elementary economics textbook. Inflation has not been fixed, ever. That's why my parents could buy a cheeseburger for $.25 when they were kids, but now... can you even buy one for $1? Nope...
to fix inflation and if the government really cared about us they would pass laws that made certain items and certain things at a fixed price Nationwide eggs milk necessity type things but I guess anything can be a necessity
Me:So if u stop buying u stop inflation... Also me: I'm hungry I need a roof I have to work so I need a car to get back and forth to work.. man I'm bored signs checks movies prices decides to stay home then subscribe to Netflix Netflix' goes up man fuck it I'll just sleep.. man this is Bull shit.. moral of the story it's never going to change only way to live is to find a way to make inflation work on ur favor
@@claytrader it’s horrible in that it isn’t the way to stop inflation, controlling the money supply is, and it is impossible to get people to stop spending and start saving
@@claytrader high interest rates is not a good thing, plus it wouldn’t get inflation to 0 and keep it there. Constantly messing with the interest rates brings instability that is unpleasant to live with. What is your problem with just controlling the money supply? It is the easiest and only fool proof way of doing it. Plus it’s a way everyone can understand. I’m being to believe you have nefarious motives.
@@MrJasonworkman you are just saying words... "control the money supply". Ok.. fine, HOW do you actually do that? If you want to control in a way that reduces the supply of money (and therefore inflation), you raise interest rates. You don't have to trust me. Go open up any Macroeconomics 101 textbook. Perhaps do a bit of learning first before you start throwing around words like "horrible".
Raising taxes also takes money out of the economy and slows inflation. I could be wrong but wouldn't raising the interest rate from zero to 5% immediately halt any progress? I think the reason they raise it by 1.5% or whatever it's it to so incrementally so the economy doesn't come to a screeching halt.
Raising taxes also encourages multinational companies to move their operations to lower tax jurisdictions. The concept of a global minimum tax should reduce that, but companies will always look to legally reduce their tax burden.
I wanted to learn about inflation. A boring topic everyone can agree. You however, made it more boring. This video took way to long and included too much dead air and filler words
Hello! I have a question 🤓 Considering your example, wouldn’t the inflation return when people finally decide to get the things they wanted to get in the first place? I mean nobody wants to save up forever e and for nothing And also how could a rising of the interest rate be made without affecting the inflation? Because it s still giving people more money Thank you🩷
The problem is that for most people the "something" is basic items like food, groceries etc. I can't wait to buy these things. Big cooperation realized that and just raise prices higher and higher. This leads to more inflation, which makes the big cooperation raise prices again, in an everlasting vicious cycle. We can't stop that with raising interest rates, because people need to buy these items.
So you blame "corporate greed"? Would you also say it was "corporate kindness" when prices go down? For example, during Covid when oil companies were losing billions...
@@claytrader oil prices came down during covid not due to kindness but because of lower demand for oil
@@101fobster oh I see... so when prices come down it's due to "supply/demand". When prices go up its due to "corporate greed". Don't you think that is a bit of a one-sided argument?
In my city (Hong Kong) it seems like ever-hiking interest rates isn’t really bring products prices down. Property market has been hammered hard though. Not really sure why
@@P_-zc7bq the interest rates are not high enough.
I agree on slowing down spending everything right away, although making Interest rate higher is also a dangerous game: it slows downs production, investments, costly on mortgages (housing is the main spending post). This is also a recepe used for previous but different inflation crisis. It doesn't solve many of the new factors that generate the current inflation:
-war in Ukraine.(making gas and oil more expensive, you need these in all steps of food production making food more expensive too, not just energy bill)
-climate change (loss of crops), -climate transition (cotsly investments), -retiring boomers( less workforces), -devaluation of money. Inflation means your money worth less, it's not the just the price that are more expensive ,it's also your money that has less value. (since COVID Westen economies have spent a lot but produced less)
- relying on other countries for cheap good production (when they stop producing, the products get more expensive)
- adapting the salaries to inflation rate ( feeds it and continue the cycle).
-Growing world population. There is less ressource for more demand.
Playing with interest rates doesn't address all these problems and as long as we don't fix at least some of them the inflation will continue.
Deflation is also a dangerous game, just like with inflation when everyone spends right away, the opposite happens with deflation , people stop spending and wait for prices to get even cheaper, therefore companies make less profit, stop hiring or layoff people and it creates a recession.
Not everything but some things to address the current inflation:
- play carefully with interest rates, making sure to not stop investment or make mortgage unaffordable, rise for a while but should drop again at the right time.
- rise carefully salary for minimum wage and lower minum class so they can afford living and consuming , but ensure to not enter a cycle that will feed inflation.
- heavily tax the profit of compagnies that make extreme benefits over inflation (energy companies now) and reinvest that in energy transition to diminish the dependency on oil and gas in every aspect of our life. (Nuclear energy is the cheapest and more safe than what people think, electrify transport of food and farms, replace gaz based ferilizer
- ensure autonomy in food and industrial production. If you don't need to import it you are not dependant what happens elsewhere. (But not enough if you're depending on the energy to create these)
- robotisation to replace the loss of work force , instead of building cheap goods in Asia , these could be built locally at the same cost with robotisation. Better for the environment since less transportation needed and bring back taxes locally.
Immigrant, brings back new young workforce to replace retiring boomer.
- the world population will continue to grow but the richer poorer countries will get the less their population will grow.
- we will also have to live with climatic event that ruins crops more often so we need to finds ways to garentee food production despite these events.
- Switzerland is a great exemple of controling inflation to keep it low and making most of deflation. The central bank prints a lot of money but own 90% of its own currency to protect its value by stopping the circulation when inflation is at the doorstep. The central bank also has a massive stronghold of gold , bonds, other currencies and makes a lot of benefit.
Turkey with 80% inflation is a good exemple what happens if you refuse to adjust the Interest rates. However that alone would still not be enough.
It's a different world, different causes therefore different solutions needed.
Thanks for the thoughts.
Interesting...
Great take dear person🥂
I know this video is from 2 years ago but this was absolutely perfect explanation and reading your responses to the comments has really educated me in this topic and changed my whole perspective. Thank you!
Glad it was helpful!
When there was a gold standard, inflation was so low that the little interest earned actually was a really profit and the vast majority of people did have a save and wait mentality, they would be like your great grandparents but spend today, pay tomorrow schemes from banks and high inflation changed all that in the 1980s .
Thanks for the thoughts.
The problem is : " spend now , pay with future inflated money". This create too much borrowing that drive inflation further & further.
Yup.
The problem is our government wants people spending and not saving. They want us continually buying things that we can’t afford on credit. Spending makes the economy thrive which is a very intentional design that will never change. Good concept though!
Thanks for the thoughts!
Interest rates definitely do discourage non-essential spending, but this lack of spending can have ripple effects across the economy. It can cause a wave of businesses to collapse. Since many businesses operate using loans, it can trigger bank collapses as well. Additionally, interest rates have a profound effect on the secondary market for treasury bonds which can put more pressure on banks. We live in a world with very complex supply chains and complex financial inter-dependency. Raising interest rates constricts spending for both consumers and producers. If the operations of producers are constricted too much then it can lead to massive supply shortages which will more likely trigger hyperinflation. It is these many ripple effects of interest rates that make it aggressive to only raise rates by 0.5% per increase, which is why interest rates is only one tool used to control inflation.
A large part of this most recent round of inflation was caused by supply shortages which were triggered by the global lock downs in response to the pandemic. Just the lock downs alone are enough to trigger inflation since they dramatically reduced the supply of goods and services. Preventing people from working and then giving income-replacement payments only increased the money supply which is now competing for fewer goods and services. Increasing the supply of goods and services is another tool that can be used to control inflation. One negative impact of raising interest rates is that it becomes more expensive to create new supplies for goods and services which only contribute to inflation, especially for essential goods.
Prices going up is only piece of the issue. I prefer to view inflation in terms of the essential goods: food, clothing, shelter and transportation costs related specifically to gathering income or resources. According to one source: valuepenguin, the average household spent about 40% of their income just on food in the early 1900's. According to the same source it dropped to 30% by the 1950's and a mere 10% by 2013. Looking only at the dollar value cost of goods or services can be misleading. It's better to compare the cost of the essential goods to what percentage they take up in the average household budget. The demand on bear necessities is primarily influenced by population growth and interest rates don't necessarily stop population growth in the short-term so the demand for those types of products continue to rise while the production of those products are restricted during times of high interest rates. As usual, those with the lowest incomes would experience the worst effects.
If the average household income in the US is $74k and the average tax rate is 13% then the average net income is $64380. If the average annual household expense on food is $13k then that is about 20.1% of the household budget. The suggestion in the video is simply to save money, benefiting from high interest rates, but this method only works with discretionary spending. The primary issue for most people are the essential goods. This is the fundamental part of the economy that is made worse by raising interest rates long term and cannot be helped by simply saving money.
Thanks for the thoughts!
Savings will earn interest as long as that money is lent to other who in turn has to payback with more interest.
To me this is a problem of not having the right amount of money in the economy on the first place
We have way too much money in the economy, hence the inflation.
Interest rates are the same for everybody but not all items inflate the same. Take technology. New tech is always high because it's better, newer and in limited supply. As time progresses, prices fall fast. Consumables are volatile such as the price of eggs being low when hens are plentiful and healthy but high when a bird flu kills them by the thousands (typical supply and demand). I prefer a different solution that gets to the root of the problem of high prices in general and that is ENERGY POLICY. Think about it. All goods require energy when harvested/mined, transported to a facility to be processed/assembled, transported to wholesale markets, transported to retail markets, and warehousing costs. Then customers must use energy to get to the products and energy to consume them (refrigerator/freezer for food, heat for cooking, outlets for appliances, etc...). Imagine how fast the costs of goods would drop if all energy prices dropped by half! I did grow up in the 70's and saw first hand how the cost of oil caused the prices of everything to inflate. The inflation caused workers to strike which caused prices to rise THANKS VERY MUCH JIMMY CARTER! Now it would be easy to just say DRILL, DRILL, DRILL but...that may not be so good for the environment. That's why everyone needs to put on their big boy pants and go full throttle to clean, safe nuclear power. France did it! They're 70% nuclear and going more nuclear every year. We can do nuclear cleaner, safer and cheaper than we did in the past using safer more plentiful fuels like thorium and molten salt. We can build modular reactors instead of the big expensive facilities of the past. We can recycle spent nuclear fuel (until Jimmy Carter ended it via executive order and Ronald Reagan reinstated it but by then it was too late). We should also not forget about hydroelectric and geothermal wherever possible. Solar, wind, tidal and biomass can also contribute. We will never replace oil and gas because we need it for jet fuel, lubricant, asphalt, plastics and cosmetics but we don't need to lean as hard on it as we did in the past. My point is that by lowering the costs of energy, you can reduce the cost of goods so that even if inflation is high, the prices are not.
Thanks for the thoughts!
When the deman goes up, the price goes up. The supply could either go up or down based on the risky situation or stability. In order to Controling inflation we also need to take a look at the stability of the current situation and the behavior of the market before we make any decision of increasing or decreasing the interest rate.
Thanks for the thoughts.
It goes hand in hand with basic supply and demand principals as well. Demand goes up (everyone buying/spending), and price will rise (given that supply is not also going up). And if demand for that good goes down (people saving), the price will be forced to go down (also given that supply does not go down). So you could explain it that way as well.
Correct.
I never thought I would get to watch a class in 4K cinematic. Great video
Glad you liked it!
So why dont we make a month out of a year to saving? Make it frowned upon to spend money and make people feel bad for spending their money? The application of that would be hard to do, but it would allow us to easily make inflation to stop
An interesting idea.
What is the effect of inflation and interest being the same %? This sounds good as then spending and saving should be random and this currently sounds like a healthy economy to me. It also means that it will not be controlled and it will likely be net spending or saving still.
Inflation will start to slow.
Another educational video. Thank you Mr. Clay for all you do for us, for putting your time and effort and sharing your knowledge with us!! May your family be blessed for many years to come. Happy new year! And.... Let's Go Brandon!!!!
Thanks for watching!
@@williamdegiovanni6785 what is your question?
Actually, the only strategy for preventing prices from increasing is to increase supply and increase competition. Unfortunately, the price mechanism does not clear markets for assets with an inelastic supply. The policy solution is to impose an annual tax on the holder such an asset equal to the asset's potential annual rental value. If this is done, there is no actual or imputed income stream to be capitalized by market forces into higher and higher prices. Owners of such assets with an inelastic supply (e.g., land and other natural assets) will either bring the asset to its highest, best use or sell to someone who will. Thus, the high annual tax prompts an increase in supply, which prompts an increase in competition.
Recommended reading: University of California economics professor Mason Gaffney on taxation and macroeconomic theory.
Cal-Berkley professor? No thanks...
@@claytrader He taught at the Riverside campus.
In my opinion, fighting the inflation is one thing and fighting greedy is a different thing.
First, I don’t believe in any inflation number announced by the government,( it does not match with real life inflation numbers).
While government is taking about 7% inflation, in reality we see 20-25% inflation.
Prices going up because we don’t fight greedy
Same product that is been sold at A for example, u will find it at B for 20% cheaper, but people still want to buy it from A because B is 1 mile down the road further.
By the end of the month u have realized that u have to reduce ur spending by 25% more to keep living with 5% inflation.
So by the end the inflation # announced by the government is way different from the # in real life
Still would love to discuss the inflation # with the government officials and find out how did they got that #
I'm not sure what greed has to do with this.
Great video! However, a common counter-point from economists against deflation is that it can stop the economic growth of a country because less people are able to consume because lower prices will lead to a lower demand. This leads to businesses earning less profit and being forced to lay-off employees or give lower wages which in turn leads to further lower demand and supply. I don't know if this is true though.
That's all a joke. Lower prices stimulate MORE purchasing which counterbalances the lower prices.
@@claytrader Oh okay. Any reason or conspiracy theory as to why this is not implemented?
@@Jojo-lg5jm because politicians want to keep their jobs.
Would a save mentality lead to a vicious cycle where the interest rates being higher than the inflation rate will eventually kill businesses?
How would a business deal with their expenditure (e.g materials, wages) but see their products not sell?
Products will sell, just at lower prices... this causes pain sure, but it's part of the process of weeding out those companies that weren't "actually" running a good business.
Exactly, small businesses will be hit the hardest, especially bc they will be competing with big ones who can take that blow. I think that could really mess with free market.
We definitely need more economic lessons. Amazing video
Thanks for watching!
Quick question: Other than interest, would production incentives also help? For example, the Canadian government could invest 100s of millions into city infrastructure as long as cities increase single-family home construction by 40%? That why home prices go down?
Except the price to build those homes is gonna skyrocket... builders are not going to build something for free.
Inflation is based upon money supply. So wouldn't decreasing the money supply, or rebasing the currency on some tangible asset(precious metals, oil, etc.) decrease inflation?
Right, that's the whole idea of raising interest rates. To suck money out of the system (decrease the supply).
What about the time it takes to increase the interest rates in the sense that if, say, the expected inflation is 10 percent and the interest rate is 1 percent, why not suddenly increase the interest rate to 11 (or more) percent instead of slowly increasing it? In my country, the authorities deliberately chose to increase the interest rates very slowly so that banks are not affected. I don't know in what sense "affected" is used.
That's what the USA did back in the 1980's... yes, it does bring about pain quickly, but it also fixes things. Sorta like ripping a band aid off!
Thank you, nice video. This makes sense but can't help to perceive it as a closed system. What about money emission?
Money emission?
@@claytrader Money printed by the government. How it affects inflation vs interest rates.
@@Santa-ub8bk I have some videos on inflation
the government will never raise interest rates above the rate of inflation. the reason being is that every transaction in the economy is taxed. so if the economy slows down due to people saving and not spending the government brings in less tax dollars as well as job growth slows down . this would cause less income tax as well as sales taxes. this is why so many people are pouring into bitcoin. its because the government is predictable.
Well.. the government could always STOP spending so much money so that they don't need as much.....
I'd say a lot of the inflation we're facing now is due to consolidation of industries and greedy corporations. Greedflation is very real.
So when prices go down, such as gas prices, is that kind corporations? Perhaps we could call it "corporate kindness"?
I like this as a principle. However what happens when, like in the UK currently, inflation is being driven by external factors such as war in Ukraine and supply issues for food manufacture and oil/gas? People still need to eat and heat their homes. Interest rate changes won't change this (no hate, this is a genuine point)
No, it's not being driven by "external factors". Most is self inflicted.
@@claytrader can you provide more detail to your statement?
@@Toffeevizsla you'll need to be more specific.
@@claytrader You do realize the war in Ukraine is at least part of the reason gas prices are up, right? Since planes use fuel, the price of food coming from other countries has also increased. The bottle neck in the supply chain because of COVID 19 is driving up prices, as well. This country wasn't equipped for a pandemic that stopped trading all at once, then quickly restarted after people got vaccinated. If COVID 19 didn't become so widespread, the inflation might not have existed until the Russian invasion of Ukraine started in Feb 2022.
@@davidzimler2507 yeah, it's part of it... but the money printing is the main cause.
Inflation only exists in a monetary economy. The only way to stop inflation is to revert back to a barter economy - and face an entirely new set of problems.
Your solution doesn't stop inflation - it just creates idle resources to control prices in the short term. Given millions of those idle resources will be human it's hardly a solution to be proud of.
A better solution would be to more effectively tax non-essential goods and services.
Thanks for the thoughts!
Couldn't the government just (literally) burn any excess profits, therefore raising the value of the currency
The government has no profits. They run deficits.
This is a theory. But you still have corporations who inflate their products, still becoming more rich while the poor who their products become more poor. The rich keep escaping taxes while we pay for it. Increase wages and penalize companies for inflating
Yuck. Too much victim mentality for my liking. Toughen up!
But I've noticed businesses raising prices due to lack of sales
What businesses?
If it is a developing country with inflation, what will be the solution?
The same.
Ok quick question, when u increased the intrest rate to 6%, slowly the inflammation falls to 3% (that's demand and supply principal right?, Like they are saving so there is no demand but production is still as the previous time)
But let's say we shift it local industries and increase production of some main consumed items, which are the cause of it, will the inflation will get down that way (i know it sounds like a system controlled step, but will it work?)
an increase in supply would help, yes.
@@claytrader TNX for replying 😁
@@ankurdey747 you're welcome
It all comes down to affordability. If people can afford it, they will buy it regardless of interest rates.
Right
Conclusion: the banks should give people more money and that will somehow solve inflation
exactly. It would encourage people to SAVE and buy stuff with cash instead of credit. When you don't have debt, you don't care what interest rates are.
I understand but your example and how it was worded was a bit confusing but I got the general idea
Thanks for the feedback!
How does putting up the interest rate help anybody but the rich? What is that going to do for the majority of the population with less than 4k, 3k, 2k in their bank account just trying to pay rent and buy food. Are they going to wait five years for 100 quid. Why cant prices be fixed? They could not inflate or deflate. Why not take inflation out of the equation?
So you're going to take a risk to start a business and maybe lose all your money when you know the "upside" are fixed prices?
I’m 5 months late but how do I get u.s. government and the president to watch this video
lol... email them?
From the common man's perspective, how would one incentive a bank to raise interest rates?
Would I just save all my money until some force of nature makes it profitable for people as a whole to save, and by suffering through hard times, I'd have a leg up on my peers to buy? Seems kind of like gambling. **Despite my confusion, this is a very informative video!
A bank would be incentivized to raise their rates if people start removing their money from the bank to move it into another bank.
ok so inflation is when you have to much money on the market... why can't you just phisically destry some cash to regulate the inflation ? The national bank could just toss few bilion dollars into a furnace and voila...
Destroy whose money? I think donation would be a good way: except we burn them instead of giving them to others😂
Whose money are you going to destroy?
@@claytrader oh god damn it ! every state has a money reserve in the national bank, ok that money is not on the market but it has to come from somwhere right ? it is deposited there from taxes and shit ! If you would burn a part of it that would meen less money on the market right ? America actually did this in 1950
@@antifa86i35 you are correct in this sense. If the money wants to take some of the money it has collected from taxes and NOT USE IT ("burn"), that would help.
@@邓梓薇 donation would still hold the same amounth of money on the market! well you could donate it to other contries, so you would raise there infaltion ...
What is the effect of stopping inflation on the housing market
Down
I like the simplicity, but I still don't get it. If we have 10% interest in savings accounts, and my mortgage goes up 8%, and my camper loan is 12%; what's the point of buying now? The item for more expensive anyway. The example only makes sense when you have available cash. Not when your disposable income is 125 each month. That's why most people have debts. The buy now pay later, distorts the buying power and gives no incentives for reasonable prices. Price isn't value although it is always treated like that. Economists think differently than middle class housewives.
It would not be more expensive if you're buying with cash. Can you imagine having 10% interest in your savings and how fast you could "save up" before buying something (and therefore NOT needing a car loan for example).
Wait what if people withdraw the money where would it come from would it come out of thin air or would they print the money wouldn’t that make it worse.wouldn’t it be better to take money from out of the country then bring it in to circulation.Thanks just saying.
I'm not sure what you're saying.
….but what happens to the poor buggers in retail 😢
They are forced to bring their prices down.
@@claytrader ahh make’s sense.
Thanks for the education Buddy
@@EweTubio cheers
So, although the validity of this video falls into fact. It only responds to one portion of economic inflation. Consumable items mark for a higher percentage of the populations income. In which there is no saving involved. Bc they are consumable. Other factors come into play, like transportation of goods, the energy sector, and capitalism. Capitalism reacts negatively to deflation. Therefore, monopolization plays a higher role in setting the price of consumable goods. Which is based on profit margin. So, I would state as a simple rebuddle. That inflation, although, can be affected by mentality. Also requires hardened government policy to nip inflation. I am curious if you could cover that as well. Im sure it would be appreciated by others as well as myself. What policies would need to be taken place in order to rain in inflation. Outside of just social behavior.
I disagree with your premise.
@@claytrader explain
@@ryan_c8449 don't have the time
@claytrader ok, fair life can be busy, but your response is pourly executed then. That was your decision, which i clearly gave you a chance to rebuddle. I found your video lacking and simply non deserving of any respective economist. You fail to bring into an argument anything outside of stop buying things. Yeah, ok. Good job, Sesame Street. There is way more involved in the response to inflation. And simply based on your response. You don't agree with my premise, is sandlot at most. My response to that is if anyone is looking for advice on inflation, don't look here.
@@ryan_c8449 you are a socialist. You look at the world through a different lens.
So you mean that if more people prefer to save their money into bank accounts, the demand for the goods will go down. Thus the price will go down, which means the price level will go down ( stop inflation)?
Yup, and as prices are going down... people's savings are going up... so the prices will never crash, but they'll drop back to reality...
What happens if one person buys all the high inflated currency(say the rich people buys it)to have the majority of the supply what would the deflation happen if that person didn’t use it so it increases its value.
That's a totally unrealistic situation. How can "one person" buy "all the currency"?
@@claytraderjust answer my thoughts even tho it’s unlikely
@@SUPERPAIN no thanks
@@claytraderwhy just answer my wild thoughts
@@SUPERPAIN so you want me to take time away from my kids and wife to answer "wild thoughts"? No thanks.
I came here to see why my Arizona went from 99 cents to $1.99 in a month
Smart move!
what about increasing production instead of adding interest rates, lets produce more food, more houses and more cars
That could work too, but both is better.
The more money available to spend the higher the inflation. And we (Govt) keep pumping money in so that's what you get. It's easy to say everyone should earn $20+ an hour as a living wage but then that monetary amount moves up as well for everyday costs. Everyone deserves an opportunity to earn as much as they can and there should be safeguards to protect those truly in need but the abuse of social services are crippling this Great Country. Just my 2 cents worth. Another good lesson Clay. Thanks
Thanks Denny!
Does this work in like sweden i
Yes.
Inflation is totally and solely due to excess currency creation.
Correct, which is the (old) definition of inflation.
Better to stop printing money. And it’s impossible to control people like that.
I agree. Stop printing money.
Thats all good and well but what also drives up inflation is people having too much credit. Credit help people spend on stuff they do not need. Get rid of credit cards.Buy only what you need.
People will be willing to use credit less if it costs more (which is what higher interest rates will do)
Lower taxes so you have more money to save. Libertarian gov't with a Volcker policy would obliterate inflation.
That also means more money to spend idk why you're assuming all of it would suddenly be saved up. Especially with lower income brackets more saving is not what tends to happen
Senior Span, spending more money because you HAVE more money is way different than spending more money because prices are going up, so you are forced to...
@@claytrader Right... so how would lower taxes eliminate the issue of inflation? That was my point.
@@seniorspam2453 because then people would have money to SAVE.. and when people have savings, they don't need the government to turn on the printing press to "help people" because those people already have savings... lowering taxes does not "create" more money out of thin air. THIS is the fact you are missing.
@@claytrader I never said lowering taxes creates money out of thin air. Yea, people have more money to save with tax cuts, but are they also have more money to spend, which would actually accelerate inflation. It's actually why proponents of tax cuts argue for it as a method of spurring economic activity... because it increases spending.
Your argument that lowering taxes would reduce inflation, would only work if most of that extra income actually increased savings relative to spending, which is not what tends to happen, especially in a case where prices are already high and people need more of that income for consumption
Your monetary analysis is on point: increase interest rates to incentivize saving and reduce inflation. Your fiscal analysis is not.
Back to the 70s and 80s. 10% interest rate.
Perhaps!
I'm not good with math. Is there an easy way to apply this to real life?
I'm not sure what you mean.
Is there an easy wsy for me to know if I should buy something right now or wait and save for it? Without using math
@@I.Omarick no, math is a good tool
I don’t get how we know what inflation will be in a year. Don’t we only know how it is compared to the past. And how do you get the banks to want to pay people to hold their money which will make people want to save more.
You get banks to do it by raising interest rates.
@@claytrader in the example the person knew what interest would be a year from now to make their decision. Also banks have to be pretty certain that they will make more money by raising interest rates. Essentially they are borrowing from the people and expecting to make more than the interest they pay back. So doesn’t that mean these are just symptoms and not the actual problems? Wouldn’t the problem be more about economic outlook? They would have to be certain that they can pay out the interest later by lending that money at a higher rate today which is based on how people are who aren’t saving are willing to borrow as an investment that will make more later which means they believe there will be economic growth generally. So isn’t the real problem fixing the broken economy that is relying more and more on exporting jobs due to globalization, transnational corporations crushing small business creation, a lack of willingness of voters and politicians to work together to agree on and create new legislation for economic growth, etc.
@@NaymitMayne we can get into theory all you want, but and the core, the video explains how to fix it. Look back at the Paul Volker years...
@@claytrader I’m not an economist but it seemed too simple that all they had to do was raise the rates for savings. It seems the banks are reacting to other conditions and can’t just pick the rates but rather need the economic conditions to be right to do so.
in order to "raise the rates for savings", you need to raise the federal fund rate (which is what is being referred to here when saying, "raising interest rates")
Study bitcoin, just study, dont buy, just study..
I'm not sure what that has to do with the topic of this video.
but interest rates rises, companies would have hard times to pay its debt to the bank, and because people keep their money because of interest rates rise, businesses would suffer, because nobody would spend
Yup.. gotta clean out the system from companies who made bad choices ( to take on too much debt)
@@claytrader so how can the bank give their customer interest if all the debitors go bankrupt because they cannot pay their principal and skyrocketed interest? And because business would bankrupt because interest rates rises, many would lost their jobs, without jobs people dont have money to spend to other businesses would dissapear, so how come interest rates is the solution if businesses close their activites or shops and people suffered because no jobs? Also Bank customer cannot get the interest they want because all businesses cannot pay their liabilities to the bank, as result of their primaty customer decide to save to the bank? How increase rates the best solution to fight inflations?
who said "all" would go bankrupt? That's a false assumption on your end.
@@claytrader yes is not all, many finance industries may be can survives because of their own capital, but how about small - medium businesses? Restaurants, fishing, craft industries etc if those businesses had bank loan that suddenly bigger because of the interest rates rises, how they will manage to pay them if their daily customers dont spend their money to purchase good or services they provide in order to keep them in the bank for interest return? And since customers would spend less how the businesses would pay their obligations give customers bank their interest revenues?
@@tomster95 lots of businesses will fail... as needed.. bad choices as a business need to suffer consequences. That's how the system is SUPPOSED to work...
Well, I think the data disagrees with what this guy is saying. Relatively small increase in the prime interest rate has an effect on inflation. Why? Because when money is more expensive to borrow, companies slow hiring and capital purchases or lay people off. Less money chasing the same amount of goods means things go unsold. This creates a downward pressure on prices. Same thing with home starts except instead of it applying to companies, it applies to home buyers. Money is more expensive so people buy less expensive houses (or no houses) and this puts a downward pressure on home prices.
Am I right? Not sure, but if a retired engineer understands economics better than this guy, that doesn’t make the retired engineer an economics genius, but it does say something about the presenter of this video.
Yeah? Go look at UK's inflation situation... just increased again, unexpectedly... i wonder why...
@@claytrader Are you literally saying that because you can find a single instance of you being right that it proves that all the data agrees with you? Something tells me you were not a STEM major.
@@AndrewUnruh I'm an engineer, by degree. I've taken a few math classes. But that's irrelevant and an appeal to authority. This is a very basic math equation we're talking about. I'd also encourage you to consider the fact that, maybe... just maybe.. this "data" you are referring to is being manipulated a bit? Thanks for the thoughts and take care.
@@claytrader You're an engineer? My bad. I guess I assumed that an engineer wouldn't try to prove a general principal on the basis of a single observation.
Just to be clear, I am not saying you are wrong, but I have a lot of doubt. Your analysis seems incomplete to me. Am I unrealistic to think that even small increases in loan rates would lead to less borrowing or that less borrowing would lead to a slowing of the economy?
@@AndrewUnruh it's not "MY" observation. It's a basic math equation and found in any elementary economics textbook. Inflation has not been fixed, ever. That's why my parents could buy a cheeseburger for $.25 when they were kids, but now... can you even buy one for $1? Nope...
to fix inflation and if the government really cared about us they would pass laws that made certain items and certain things at a fixed price Nationwide eggs milk necessity type things but I guess anything can be a necessity
Price controls? Ummmm... no, that's how you create shortages.
Me:So if u stop buying u stop inflation... Also me: I'm hungry I need a roof I have to work so I need a car to get back and forth to work.. man I'm bored signs checks movies prices decides to stay home then subscribe to Netflix Netflix' goes up man fuck it I'll just sleep.. man this is Bull shit.. moral of the story it's never going to change only way to live is to find a way to make inflation work on ur favor
Right... go to sleep until prices come back down...
Soooo, it's the conserers fault that inflation is high? *open for discusstion
Whose fault?
Wow, that was horrible and impossible to do. All you have to do is control the money supply.
What was horrible and impossible to do?
@@claytrader it’s horrible in that it isn’t the way to stop inflation, controlling the money supply is, and it is impossible to get people to stop spending and start saving
@@MrJasonworkman what do you think raising interest rates does? It sucks money out of the system. It reduces the money supply.
@@claytrader high interest rates is not a good thing, plus it wouldn’t get inflation to 0 and keep it there. Constantly messing with the interest rates brings instability that is unpleasant to live with. What is your problem with just controlling the money supply? It is the easiest and only fool proof way of doing it. Plus it’s a way everyone can understand. I’m being to believe you have nefarious motives.
@@MrJasonworkman you are just saying words... "control the money supply". Ok.. fine, HOW do you actually do that? If you want to control in a way that reduces the supply of money (and therefore inflation), you raise interest rates. You don't have to trust me. Go open up any Macroeconomics 101 textbook. Perhaps do a bit of learning first before you start throwing around words like "horrible".
I’ll tell you how to stop it tell the federal reserve to wipe their ass with their printed money.
lol
Get this guy to 10million subs PLS
Thanks :-)
Raising taxes also takes money out of the economy and slows inflation.
I could be wrong but wouldn't raising the interest rate from zero to 5% immediately halt any progress? I think the reason they raise it by 1.5% or whatever it's it to so incrementally so the economy doesn't come to a screeching halt.
Raising taxes kills incentive.
Raising taxes also encourages multinational companies to move their operations to lower tax jurisdictions. The concept of a global minimum tax should reduce that, but companies will always look to legally reduce their tax burden.
not work if we keep printing money bud
sure it would
clay for president!
I don' think I'd be very popular lol
this confused me even more
How? It's very easy.
Yeah this wasn’t explained very well.
If you already know how to explain it, then why were you watching?
@@claytrader I’m not pretending to be an expert. I’m commenting on your communication to your audience (me).
@@BKbucknut93 thanks for the feedback.
only mee seeing how u are replying to every comment on this video ;-;
Thanks for watching.
smash fr
fr?
@@claytrader fr fr
@@hanaarrogancia4158 sorry, I don't know what that means.
You have 500k subs - how dare you reply to every comment?
I know.. I'm a scumbag!
I wanted to learn about inflation. A boring topic everyone can agree. You however, made it more boring. This video took way to long and included too much dead air and filler words
Thanks for the feedback. Sorry to disappoint.
First🗣️
Cheers
Waste of time
How so?
wow, first video about economics which was totally understandable. thank you!
Glad it was helpful!
Hello! I have a question 🤓
Considering your example, wouldn’t the inflation return when people finally decide to get the things they wanted to get in the first place?
I mean nobody wants to save up forever e and for nothing
And also how could a rising of the interest rate be made without affecting the inflation? Because it s still giving people more money
Thank you🩷
Sure, prices may go up to more demand all of a sudden, but it would be in a way more controlled/natural way.