Central Bank Misconception: When Central Banks Raise Interest Rates, They’re Not Doing It To Slow Consumer Spending, They Do It To Reduce FISCAL Spending – September 8, 2023

A lot of people assume the PRIVATE sector needs a central bank, but the private sector does NOT need a central bank; as a matter of fact, private banks don’t need a central bank. I can take this a step further and say fractional reserve banking doesn’t need a central bank.

The only entity that requires a central bank is GOVERNMENT. There has been this miseducation about central banks. Lobbyist and special interest groups have taken over the federal governments of a lot of different nations, and the goal for this entities is to get FREE money from the government as well as get the government to enact regulations that benefit their companies or entities directly.

As an example, the minimum wage law, prevents certain manufacturing companies from existing in certain countries, because the minimum wage laws prevents wage/price deflation from occurring.

This price control measure guarantees that the central bank will have to print money to cover the deficit, that makes a country uncompetitive manufacturing certain goods, which makes that host nation 100% reliant on other nations to EXPORT the host nation things it should have been able to manufacture on it’s own.

This is FISCAL policy and if let’s say for what ever reason these regulations on labor are NOT producing the results imagined, well then it’s the central banks job to tell the Federal government that maybe it should consider changing it’s fiscal polices.

Now, all nations are different, the exact same minimum wage law in the United States might have completely different effects in Brazil for example, why? Well, may the population of Brazil doesn’t have the PEOPLE or population to innovate.

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As an example instead of paying humans to do a job, an American company might get a machine to replace the human, thereby bypassing the minimum wage law, whereas in Brazil because their electricity might be intermittent, replacing humans with machines might not be realistic and therefore the passing of the minimum wage law in Brazil has a much more devastating effect, which would cause the central bank to raise interest rates.

There’s also another factor with raising interest rates, and that’s DEMOCRACY. In a democracy, the people/voters can vote out a politician or even a CENTRAL BANKER they don’t like.

So if let’s imagine for a second that voters imagine that their central banker should NEVER be combative with their federal government, so as an example instead of raising rates when the government is losing revenue, the people demand that the central bank LOWERS rates when the government fails to get revenue, what happiness then? Well, as we’ve seen in other countries, when the central banks can not mirror the behavior of central banks, hyperinflation often ensues and/or SHORTAGES of things happen.

Because if let’s say the current federal minimum wage is $15 an hour, but the PEOPLE/Voters demand the minimum wage be $30 an hour, and the voters don’t want to pay for or can’t pay for the higher cost of consumer goods, yet, the central bank lowers the cost of borrowing for the federal government, what happens then? Well, that’s how HYPERINFLATION occurs.

If I’m broke and I can’t pay down my debts and then my private bank lowers the interest rate on my debt and expands my credit line, that private bank would be rewarding my bad behavior, and chances are that bank would go bankrupt before I do.

The same logic applies to governments and their relationships with their central banks. If a government has bad fiscal policy, and it’s central banks refuses to reign in spending, and cut regulations then the voters/consumers will have to suffer the consequences with higher prices for EVERYTHING.

Now if the government had to borrow money from PRIVATE banks and PRIVATE lenders, sure the government to lie to voters but the results of their BAD ideas would be felt almost instantly.

Central banks allow the government to pass all the risk associated with their bad fiscal ideas onto consumers/voters. However even within the confines of this system, private citizens, still find a way to be PROFITABLE, my argument is that this profitability shouldn’t be confused with the Central bank creating policies that slow down consumer spending, when central banks raise interest rates, they’re trying to trying to reign in FEDERAL GOVERNMENT spending, and get the federal government to change it’s behavior.

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Now, I should also point out that in a health economy interest rates fluctuate as capitalism makes production more EFFECIENT. However if people keep misclassifying the role of the central bank, it allows the culprit which is the federal government and the VOTER to imagine that there’s some mythical figure controlling the economy. No, we the people are the culprits of our misfortunes.

Currently CAPITALISM is the most productive way to paradise on earth and capitalism in the modern era is heavily dependent on FISCAL policy. What is FISCAL policy?

What is FISCAL policy?

In economics and political science, fiscal policy is the use of government revenue collection and expenditure to influence a country’s economy.

Interesting times ahead