Inflation: "We Have to Do Something"
On October 3, 2022, CNBC ran the following headline:
Turkey’s Inflation Hits 83% as Erdogan Vows to Keep Cutting Interest Rates
The CNBC article highlighted the fact that “… Turkish President Recep Tayyip Erdogan insists on continuing to cut interest rates rather than raise them—deviating from the conventional way of controlling inflation.”
Of course, changing the interest rate up or down will have no effect on inflation. As we have explored already, once inflation is produced it cannot be unproduced. In other words, once the empty money is printed and spent into the economy and the entire money supply is contaminated and diluted and devalued, it is impossible to sanitize it. There is no antidote for inflation. There is no economic chelation therapy. It is a disease, so to speak, that is preventable, but not curable.
Addressing inflation with adjustments in the interest rate is economic masturbation.
Oncologists often tell patients that their cancer is “treatable.” This is a euphemism for “incurable.” And at the bottom of this lie is the reality that the oncologists are going to get rich by dispensing chemotherapies and radiation and surgeries that do nothing in almost all cases but increase financial and physical suffering for the patient and family. It’s truly dastardly.
Similarly, as one honest urologist friend told me, “Often, we just have to DO something, when often, the best course of action is to NOT do anything.”
Our Western financial leaders persist with the suicidal course of action to raise interest rates. This will slow the economy (bad), somewhat slow the blending of the empty money into the money supply (doesn’t really matter), and greatly hobble businesses who need to borrow money to run their operations. In effect, it will have no meaningful effect on inflation, but it will raise the Consumer Price Index (CPI) as these interest costs will be passed onto the consumer.
Erdogan’s approach is slightly better in that it will help businesses to get past the empty money injection. It will help the economy to absorb the empty money, will enable faster adjustment to the money’s devaluation and help to stave off the scarcities that cause most of the short-term price increases of the commodities on the CPI. But it will have zero effect on the inflation.