thekonflict

The Reykjavik Scenario (or How Interest Rates Can't Control Monetary Inflation)

Read the truth here:

Everything depends on the amount of credit in the economy. If the amount of credit in the economy is much more than GDP (as historical evidence shows) you start to have monetary inflation, which have to be fought by raising interest rates. If there is not enough credit in the economy, than raising interest rates would be useless and you start to have transactional inflation, i.e. businesses must recoup expensive credit by raising prices to consumers.

Having low interest rates leads to too much credit, which kills the economy in the long run as the case with Iceland and soon US.. This will give you things like Credit crunch. In US, for every $1 in currency, there is $12 of credit. Thus, you must charge very low interest rate to keep this system working, but this then generates even more credit, which basically is like printing money.. This is what US is doing right now.. This will obviously lead to hyperinflation in US sooner or later..