Growth is sacrificed when the value of the money is
sacrificed because spending goes down due to inflation, and people buy less due
to high prices. However, inflation expectations may increase spending which
further increases inflation. Normally, people expect inflation to go up in the
long run because they assume that the population would increase, but experience
from Japan shows that advanced stages of growth increase supply, and demand
goes down due to a lower population growth rate, US, Europe too... However, if
the central banks increase the value of money by increasing interest rates it
may help create low inflation and expectations people could delay spending and
actual inflation would be low which means higher demand... Lower prices are
more expansionary, it is the law of demand...
This age monetary policy has missed the goal of
increasing savings and, then, investment... The people whose savings are
invested are poorer than the people who are using their resources... This is a
partiality... Wealth is being destroyed by using inflation as a policy...
Central banks must target low prices by higher interest rate, it is the only
way to create real wealth..."
The inflation expectations have been stable around
five percent, but the RBI wants lower inflation expectations for low inflation
and continued expansionary policy... The central bank shall target value for
money by maintaining prices/inflation to increase/decrease demand/supply to
achieve full employment, and growth, and expectations... Our ultimate object is
price stability with full employment...
"Household savings had touched a peak of Rs 23.29
lakh crore in 2020-21 -- the year which saw the second wave of the Covid
pandemic. Following that it has been on a decline. It then fell to Rs 17.12
lakh crore in 2021-22 and further to Rs 14.16 lakh crore in 2022-23.9 May 2024.
According to the National Account Statistics 2024 from the Ministry of
Statistics and Programme Implementation (MoSPI), net household savings dropped
a massive ₹9 trillion over the three years leading to FY23, now standing at
₹14.16 trillion.30 Oct 2024"
In the US, Fed wants investors to expect no rate cut
in hindsight and continue to invest, a rate cut is not expected until an
exception arises that it wants them to not delay spending in the expectation of
a rate cut and lower cost... A strong dollar makes imports competitive and
could boost domestic demand for imports... A strong dollar increases exports
uncompetitiveness... Probably others are not imposing higher tariffs on US exports...
Dollar is very costly..."
RBI is now more concerned about inflation expectations
due to investment demand and spending and rate cuts, while consumption demand
is lagging due to higher inflation and also due to higher interest rates... If
interest rates are maintained or increased a little it could help lower
inflation and lower prices increase demand and spending... A lot of consumption
demand would increase... It would also help the capitalists who save more than
common people... Interest rates have lost the lustre as wealth creators... Real
interest rates are 2% pa and if we calculate the speed to double investment it
will take 72/2% years is 36 years all because of inflation, same for debtor...
People have moved to more risky assets... Lower interest rates are an important
concern for risky investment... Inflation and expectations to increase spending
is rejected by the law of demand which says lower prices increase demand (and
growth) and higher prices actually lower demand... Its a mirage...
If the RBI increases interest rate to 15%pa prices
would definitely go down to 3%... Business is done by rich.. it would not
matter much. It would make people rich real incomes and wealth would go up...
demand and growth could increase if people understand this... Good old days of
double money after five years... Higher demand would also create employment...
Industry must reduce consumers' prices and cutting
rates is just an artificial remedy, high interest rate expectations could lower
price expectations which means more supply and actual low prices... Low prices
would increase demand and growth...
The only way to increase profits is to increase scale
or sell more and more without increasing prices and reducing demand... Without
innovation, a firm could increase investment to lower average cost due to cost
inflation and prices... Lower average costs and prices would increase demand
for exports... one could sell more... The ability to invest more is quite an
advantage in business...
Low price expectations could increase supply and lower
actual prices... Low prices increase demand... and growth expectations... also
due to a low base... This is done by every business... During inflation when
demand is low low prices could help increase demand... also if due to high
interest rates...
INDIA is not demand deficient which makes the
fundamentals strong but supply-side is weak, inflation tells... High inflation
expectations have also reduced supply...
Demand is low due to high inflation... higher prices
low demand... When demand is high we need a high supply which could be carved
out with low price expectations, high inflation expectations would not let
supply materialise, people may hold or spend less or save more for the
future... High inflation reduces expenditure/spending... Year over year demand
would go down or have a very low real income or growth rate... Like real
interest rates... With 2% real interest rates rates it would take 36 yrs to
double deposits... Poor people would work their whole lives to double their
wealth... INDIA needs a 2% inflation target to increase the real growth rate
and high interest rates to lower price expectations and increase supply...
Capitalists save more than common people... Even if the RBI maintains the
status quo it could lower demand and price expectations and increase supply
which actually could reinforce low prices...
Lower prices increase demand and growth... Interest
rate cuts do not increase consumption spending, though demand for loans might
increase... Increasing consumption spending may require low prices or
inflation... People could also delay spending in expectation of lower rates
which could lower demand and growth in the short run...
Rate cuts are literally possible when we have
inflation and expectations between 2-4%... Savings are down too by Rs 9
trillion which could lower the credit multiplier and demand also due to higher
interest rates... Higher interest rates and savings are important for lower
prices and higher demand and economic growth...
As far as, inequality will always be there because
people who are poor today take time to become rich and by that time, the rich
will be a lot richer... The only way to reduce inequality is to increase
interest rates on savings and investment. This would be reaped from the
capitalists and given to the masses, though capitalists would also gain by
interest income on savings... Higher interest rates would also lower inflation
and expectations and low prices increase demand and growth, poor people would
also save a lot... While other things remain constant, low prices with
sufficient employment would increase the real value of money and demand and
supply and growth and expectations... This could be a better way of income
distribution... Not only, taxing the rich, but timely distributing it to the
poor makes the goal complete, the outcome would be lower equality and
poverty... Higher interest rates could definitely help create long-run wealth
and lower prices and expectations could make the process self-fulfilling...
The economy is finely divided into producers and
consumers, and a rate cut would benefit the former, while a higher rate would
benefit consumers in the form of lower prices and higher interest on savings
which would also increase demand and employment. Politically mathematics
supports consumers, though capitalism is a part of the economy, but governments
are run by numbers and money... Political favorism and donation are common...
Favoring the rich is unjustified on political and economic grounds... It is
simply not feasible...
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