To not understand why the answer to inflation is to raise interest rates?

[BluebellBlueballs]

Is it to make everyone so poor due to mortgage rises that they cannot afford to buy as many things?

My guess is that's probably true.

If people can't afford it - but are still spending money, the question is - how are they able to spend money they haven't got?

I guess personal debt, credit cards ,loans etc are all increasing now - for some people.

Isn't that what got us in this situation in the first place? Lockdown saved us in the region of 50k over the two years which we used some of towards our renovation and some towards holidays etc.

We have a 5 year fix and with current house prices more equity so as an interesting comparison I did a search on what our mortgage would be...£80 more a month which is less than our pay rise.

Maybe once the so called ' boomers ' start to become much older and are no longer with us , maybe then things might turn around a bit , but many children of those may well benefit from house price increases and have a fair amount of inheritance coming their way.
Not everyone ( my Dh and I haven't had this ) but I know many people who might and some who already have trust funds set up and all sorts in the pipeline. Still many years off , but it must be something the government is aware of and I've heard economists mention it too and on Mumsnet. A few friends of mine have had equity released from parents houses to help with deposits and house buying and all manner of things.
It's never going to be fair and rises may only impact a small percentage of people who will always end up struggling regardless if they don't have any extra help.

It was one factor. But I would guess most of the savings from that period have probably been spent by now and aren't likely to be driving inflation as things stand? I may be wrong.

I know lots of businesses who used there Bounce Back Loan’s to fund large purchases like cars and clearing credit card debt, etc that now freeded up additional money that they are sloshing around in the economy. Where is previously there might of been a £300 car payment to make every month.
Needless to say, they are not paying back the Bounce Back Loan. And some of them did not just get one.

Interesting point, I hadn't thought of that.

Those bounce back loans were exploited by a few people.
I heard a few stories on lbc about them being fairly easy to get and I knew someone who received a few thousand and still moaned ( small business, only them involved, went out of business soon after and hasn't paid it back I suppose?)
I'm not suggesting everyone was ' on the take ' but many ringing in were surprised how easy it was to obtain. Plus the millions were written off as they were hard to trace afterwards and not chased up.

Someone I was chatting to was most upset that they couldn't claim anything over lockdown ( one of the three million who had different self employed tax affairs and therefore were not entitled to any help ) but his relative had a shop and did receive thousands in help and assistance, more than he would have done by trading at that time.
Just one small example of how lockdown affected people differently, winners and losers
Might be the reason things are like they are now ? Plus this money may still be sloshing around somewhere I suppose it used to pay off debts.
The economist today on the news didn't mention covid , but it must have had a knock effect somewhere.

I don’t even think it was intentional exploitation. It’s just worked out nicely.

I know what one particular person who was just given 10 grand because he had an office. It was literally signed for about three or four days before lockdown started. The guy who owned the office had absolutely no intention of enforcing the contract. And the business at the guy ran didn’t actually require an office and only taken in the first place to get out from under his wife’s feet because there was gonna be a lockdown 🤦‍♀️

No, I'm not saying everyone was up for breaking the rules , but those ringing in about these particular loans were surprised how easy they were to obtain at that time.
The car dealer who spoke to lbc was very on the level , but he was amazed what he could claim for by ( as he put it ) ' the click of a button on the hmrc website'
The money was paid almost instantly he said.
He only claimed what he was entitled to , but I'm sure many people knew of a scam or two.

You didn’t even need a scam or two this is what I’m saying you didn’t need to be dishonest. You could be honest and still find yourself with an extraordinary amount of money deposited in your account.

I work with elderly people and it's my job to help them maximise their income but even so I am shocked at how much they have to live off compared to younger people on benefits. My clients who are really struggling are the ones under pension age, too ill or disabled to work and living on a pittance. for those over pension age the disability benefits are so much easier to get, no assessment and once they've been awarded their disability benefit ( usually over £100 a week ) this then passports them to claiming not insignificant amounts of pension credit. Often the older people themselves are shocked by the amounts they receive. I know I will probably get slated for this but I just see this as a complete ticking timebomb, totally unaffordable with so many older people living so long.

I think this is so wrong- we are complaining about disabled pensioners having some money. The triple lock protects us all when we are older.

if we cut back on pensioners benefits now, what’s next?

I hate how begrudging people are. The least pensioners who have worked deserve is not to have to worry about the heating

It's a good point. I was thinking about people's savings from not being able to go out, commuting etc during lockdown when I said that money's probably spent by now, but of course some people got much more than that.

"EXACTLY. This is why the pension triple lock must be abolished. Political parties protecting pensioners coz they fear political repucussions of that cohort. So regressive. Most pensioners own homes, decent incomes, yet get pension increases and winter fuel allowance etc."

UK state pensions are relatively low so I'm not sure that's totally fair.

You have a point for non-means tested benefits for the richest age group in society though.

"Very basically, it discourages spending and encourages saving. I think.
Isn't that what got us in this situation in the first place?"

Not really. Read the article I posted.

Sorry if it's been mentioned, only quickly scrolled through the thread, but I'd highly recommend reading up on some of Isabella Weber's ideas. She's a US-based economist who has strongly argued for a couple of years now that raising interest rates is not the right solution to address the inflation we're experiencing now: https://www.theguardian.com/commentisfree/2022/aug/17/inflation-is-causing-real-pain-but-raising-interest-rates-will-make-it-worse

She got absolutely destroyed on social media by mainstream economists like Paul Krugman for her view. But now policy makers in both the US and EU are starting to come around to her way of thinking.

Long story short: she says current inflation is a supply-side issue. It's companies raising prices beyond what is necessary to meet their rising costs, and what's needed to address it is targeted price controls for specific essential goods (housing, fuel, food).

And here is a really good longer article about how mainstream thinking on inflation is wrong (but shifting):
https://www.newyorker.com/news/persons-of-interest/what-if-were-thinking-about-inflation-all-wrong

Thanks for the link but it's behind a paywall

Re your bounce back loans - in Australia businesses were just given covid cash flow boosts. They didn’t have to ask for them or demonstrate any hardship, just lodge their normal quarterly returns. So that was tens of thousands extra per active business sloshing about in the economy.

In addition businesses could claim covid wage subsidies. They were meant to demonstrate a significant cash flow reduction to claim, but it turned out you could claim if you only anticipated the reduction. Many enormous businesses which did roaring trade during lockdown, such as home office suppliers, claimed the subsidies prospectively but then had too much political influence to be required to pay them back. (Fools like me, with a small business, waited to see if we would actually have a reduction and only claimed for the quarters when we did.) So gazillions more sloshing about.

The wage subsidies were a good idea that went a bit wrong due to bad faith, but the business cashflow boosts were just a way of handing taxpayer funds to business.

That’s only two years ago (and we don’t get our energy from Russia, so higher energy prices here are pure profiteering), but now it’s all “omg, who could have anticipated the global situation” from the Reserve Bank.

Similar here at least for some people with the cash which was handed out in covid. My very part time dog walker was given thousands, more than she would have earned.

A friends sister had just opened a cafe, she kept trading doing take outs and was rushed off her feet, was given a lump sum which she used to do a new kitchen with at home.

@BluebellBlueballs

Your gut feeling is correct.

And QE and covid loans and lockdown played a part.

Interest rates don’t do anything to contain supply side inflation. That’s the cost of goods is being pushed up by rising costs. That’s opposed to demand side inflation where everyone is spending like nuts and prices are rising because of that. Interest rates would calm the latter.

The entire western economies are based on almost free energy- and the supply surplus which has maintained that has come from Russia.

I’m not going to get into the war because I don’t want it either but to get it into perspective we’ve bombed the shit out of loads of countries / murdered millions if they’ve got any oil if it suited us and no one gave a fuck.

The problem is we’ve sanctioned energy. That’s us - we did it, Russia didn’t it was the decision of the west. And the real problem is we shouldn’t even need it. We could have built our own nuclear, expanded our oil fields etc. with the exception of insulation green heat pumps / solar etc.. are bullshit and don’t work, the lifetime savings don’t take into account manufacture costs and losses so in the medium term they’re ok for virtue signalling but actually cost more in terms of carbon footprint than forgetting the whole idea. Successive govts have caved to the green mob and put their heads in the sand / fiddles the figures.

So they can’t admit any of that ^^.

I will guarantee that you really don’t want to know what we’d have to do to get our old lifestyle back. Things haven’t got bad enough yet for people to consider what would have to be done. Another two winters will do it I think.

@Twotwotwotwo
Thank you for that excellent link.

All my life, it’s all been a bit complicated to me, but that explains things in fairly simple terms, which really helps 😊👏🏽