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A much better idea would be targeted tax hikes on the wealthy. First, that takes away some purchasing power. Secondly, it would lessen bond issuance, which provides income for the upper class. Using fiscal policy could be more appropriate than relying solely on interest rates.

Even if one concludes there is excess demand in the economy, that clearly stems from upper echelons. But raising interest rates actually provides income to this very group; hence, worsens your problem, while breaking the back of those who depend on credit for basic necessities.

Year after year, the Fed survey finds about 40% of all adults in the US couldn't cover $400 emergency expense in cash.How reasonable is it to try to lower the demand by increasing interest rates in this situation, as the Fed has been doing?.

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This could cause bankruptcies, recession and a debt-deflation cycle. Govt, on the other hand, can easily refinance its loans as it has the central bank; therefore, much less risky for the overall economy.

Hence, to repay loan+interest, new money (new interest bearing debt) has to be created. If govt will not borrow, that has to be either businesses or household. The problem is those cannot refinance themselves if economy slows and banks do not extend new loans.

When a balance budget is advocated, it is fair to ask: whom would you rather borrow?.That's because of our current system. All money is created as interest bearing debt. But, it's important to note banks create loans but never interest.

Largely ignored by the profession, even though Rudd himself is at the Fed and a highly established researcher. Below is the link to his paper:.

Mainstream economics is replete with ideas that “everyone knows” to be true, but that are actually.arrant nonsense. That is how Rudd (2021) begins, in which he argues quite convincingly that "inflation expectations" do not have predictive power for actual inflation.

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We have another pure example in history. During the US civil war, Lincoln directly issued greenbacks to pay war spending. Treasuries were still issued to sterilize some of greenbacks to offset war inflation, even though it was not mandatory at the time. Again, not to borrow.

The exact same process happens with govt finances save for an important difference. Sterilization is mandatory, not a choice. Hence, govt must issue bonds to sterilize deposits that will be created when govt spends. This gives the impression govt borrows to pay for its spending.

Then, the CB has a choice, if they are worried they created too many CHF they may decide to sell bonds to sterilize those credits. That converts reserves/deposits into bonds, hence, sterilizes them. Again, no student ever asks whether bonds were issued to borrow money.

Sterilized central bank intervention.Suppose the Swiss worry CHF is too strong against USD.CB intervene and sells CHF and buys USD. Very simple, and no student ever asks where CHF comes from. Intuitively understand CB just creates them.

Why does the Treasury sell bonds? .Hint: not to borrow, but because of rules and regulations in place, it might become difficult to see. Luckily, there's a pure example in international finance that every lecturer uses, which explains the whole process.