The guy on the podcast said something about this for about 2 seconds and didn't explain anything. I thought it was an interesting idea. But i'm not sure about it.
The general thinking is higher interest rates help reduce inflation. But this may be wrong in the short term.
What happens when interest rates on T-bills go from 0 to 5%? At 0% the government doesn't have any interest payments going out into the money system. At 5% they are pouring a huge amount of interest payments into the system. The more money in the system the more upward pressure there is on inflation.
Eventually businesses and individuals are hurt with higher borrowing costs. Which would slow the economy and demand reducing inflation pressure.
There would be a time lag here, for the first months or year (some unknown length of time) higher interest rates would contribute to inflation.
I have never heard any of the experts discuss this. Obviously there are many factors but government interest payments are a very large amount of money.
Thoughts?
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