Comments by "k98killer" (@k98killer) on "Why Cutting Interest Rates Causes Inflation Explained" video.

  1. The confusion between inflation and CPI is a pet peeve. Inflation is the expansion of the circulating stock of money and credit in excess of the expansion of demand for money due to increased economic activity: if the circulating money supply doubles but economic activity increases sufficiently to double the demand for money, there will not be any inflation. CPI, on the other hand, is an attempt to approximate changes in prices across a basket of goods and services as a replacement for an accurate measure of inflation, which would be primarily monetary.
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  2. Monetary policy is broken when the issuer of base money, the Treasury, is issuing without end. The Fed increasing interest rates causes larger federal deficits, which are inflationary; bank NIMs and thus profits increase, leading to expansion of bank capital through retained earnings and thus enabling them to lend more, which is also inflationary. Raising interest rates only fights CPI when it results in 1) a shift in bank lending preferences from financing consumption to financing production and 2) a shift in broader market participant preferences from spending to saving. The normal model assumes both outcomes, but they are not guaranteed. The normal model also confuses inflation, which is an expansion of circulating money and credit, with CPI.
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