Zero Interest Math

Many try to use relative value stories, to look at prices. Because prices are relative, the saying goes, only a monetary expansion can lead to continuous price hikes. Any relative value story will get adjusted for, and then prices would stabilize at the new relative values. There are many things to consider here. When relative values change, that also changes the weights of different items in a basket. Consider the scenario with a basket of two items: apples and carrots. At the start, each is worth one dollar. A basket of one apple and one carrot would cost $2. Now, consider what happens if the price of apples doubles, and the price of carrots cuts in half. The carrots cost $0.50, but the apple now costs $2.00. The total cost of the basket has risen by $0.50 cents, even though only the ratio of the costs has changed. If carrots and apples were substitutes for each other, than you could simply switch to a basket of two carrots, saving $1. But more often than not, items in a

  And yet, they may help regulate an otherwise "Free for all" financial system Derek McDaniel Higher interest rates lock-in a higher rate of inflation. This simple fact requires no empirical evidence, because it is mechanically true. If bonds yield 10%, then your currency MUST inflate 10% relative to bonds. Both bonds and currency are financial assets or debt whose value must be defended their issuer, and if you issue both, then raising interest rates makes the job of fighting inflation in your currency all the more difficult. As I explained in previous posts, interest rates can viewed as an “intertemporal exchange rate”, which means that if the interest rate is 10%, then $1.10 in one year, is only worth $1 right now in today’s money. You can “buy” $1.10 a year from now, using only $1 of today’s money. If this sounds like inflation, then that is because it IS inflation. If total wealth is increased in the interim, then the CPI level may be stabilized, but t