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Daniel Lacalle: Rate hikes won’t fix inflation or solve the debt problem
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In Short: Economist Daniel Lacalle, a professor at IE Business School in Madrid and fund manager, argues that central banks are tackling the wrong problems with rate hikes, according to FXStreet.
Economist Daniel Lacalle, a professor at IE Business School in Madrid and fund manager, argues that central banks are tackling the wrong problems with rate hikes, according to FXStreet. He believes that raising interest rates will not address the root causes of inflation or solve the debt crisis.
Lacalle asserts that central banks are focusing on the wrong issues, stating that rate hikes will not bring down oil or natural gas prices, curb government deficits, or reverse monetary debasement. He notes that financing costs for small and medium-sized businesses in the euro area are between 7 and 12 percent, which he argues will add pressure to families and smaller businesses in the U.S. as well.
Lacalle points out that small and medium-sized enterprises, which account for about 90 percent of job creation in developed economies, are the most affected by high borrowing costs. He also references a New York Fed paper that suggests staying above the neutral rate in the federal funds rate can destroy about one million jobs per year, further arguing that the Fed has even less reason than the ECB to raise rates.
Lacalle challenges the common claims that higher oil prices automatically mean inflation is rising, and that war and oil prices are inherently inflationary. He argues that consumers often blame business owners for price increases rather than the government policies that debase the currency, leading to a misunderstanding of the true causes of inflation.
What's still developing
- Economist Daniel Lacalle joined Mike Maharrey on the Money Metals Podcast to discuss the latest European Central Bank rate hike, the Federal Reserve’s upcoming September meeting, persistent inflation, sovereign debt, and what the environment means for gold and silver investors.
- A reported CPI rate of 3.5 percent may not reflect the reality for families dealing with soaring housing, food, energy, and college costs.
- That misunderstanding, he argued, makes it easier for advocates of greater spending and money creation to present themselves as the solution to affordability problems.
- Lacalle stressed that America’s debt burden is serious, but he said the greater danger may lie in other advanced economies.
- “The race of global debt is not a race to see who wins, but who loses first,” he said.
- While the U.S. deficit is unsustainable, Lacalle argued that U.S. debt still plays a foundational role in the global financial system in a way that euro-area, Japanese, and British debt does not.
Sources
- FXStreetlink