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re: Can someone explain why raising interest rates in recession helps?
Posted on 9/26/22 at 1:46 pm to Nawlens Gator
Posted on 9/26/22 at 1:46 pm to Nawlens Gator
Its wrong to think of it as a direct help to a recession.
What it is, is a rather painful medicine administered to get one of the prime drivers of recession under control. You start moderating those underlying conditions, and recovery is possible.
The truth is, people have to pay for a long period of cheap credit given far too freely. Inflation has to be tamed, or else any economic growth is going to be devoured by just keeping up with the rate of inflation.
Once inflation is curbed, a real and managable baseline for growth can be established. At the same time, it'll also soak up the pool of excess dollars being hyper-injected into the econonmy. Instead of debt fueled growth, if a highly profitable company wants to expand or acquire or retool, it'll have to dip into its own profits more than before-- it can't just get bigger or renewed by using cheap credit.
What it is, is a rather painful medicine administered to get one of the prime drivers of recession under control. You start moderating those underlying conditions, and recovery is possible.
The truth is, people have to pay for a long period of cheap credit given far too freely. Inflation has to be tamed, or else any economic growth is going to be devoured by just keeping up with the rate of inflation.
Once inflation is curbed, a real and managable baseline for growth can be established. At the same time, it'll also soak up the pool of excess dollars being hyper-injected into the econonmy. Instead of debt fueled growth, if a highly profitable company wants to expand or acquire or retool, it'll have to dip into its own profits more than before-- it can't just get bigger or renewed by using cheap credit.
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