> Last time it happened the federal reserve increased the interest rate to 20% and forced a recession just to get inflation back to normal.
I'm not at all convinced that this manoeuvre actually hampered inflation. It might as well have exacerbated it.
When you push up the rate of interest, you make it profitable for businesses whose return on capital is less than the given rate of interest, to liquidate all its assets and deposit the proceeds in a bank account (where you they will earn a greater return on capital). If the given business was producing consumer goods, it was actually helping to keep prices in check. Shutting down this business through the Fed offering its investors free profits -- as opposed to the market offering it profits for producing consumer goods -- doesn't solve the issue of inflation; it makes it worse.
If you in the long run make more money by shutting down your business and put the money in a bank account, then of course, you should do that because it wasn’t a great business to start with. But no one expects the feds to keep the interest rates that high for very long.
It’s only in a near monopoly that a few businesses shutting down will make a big difference on the prices.
But if you shut down businesses, that will increase unemployment, which will keep wages down which will keep the inflation low.
Quite a bit of empirical evidence are by now showing that you are wrong.
I'm not at all convinced that this manoeuvre actually hampered inflation. It might as well have exacerbated it.
When you push up the rate of interest, you make it profitable for businesses whose return on capital is less than the given rate of interest, to liquidate all its assets and deposit the proceeds in a bank account (where you they will earn a greater return on capital). If the given business was producing consumer goods, it was actually helping to keep prices in check. Shutting down this business through the Fed offering its investors free profits -- as opposed to the market offering it profits for producing consumer goods -- doesn't solve the issue of inflation; it makes it worse.