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Comment by TheOtherHobbes | Hacker News Reader

I've yet to find anyone who can explain to me how interest rate woo is supposed to fix the cost of essential imports like energy - which historically is one of the most obvious and direct causes of inflation.

The inflation of the 70s wasn't caused by the cost/availability of credit, it was caused by the fact that oil prices jumped from an average of $4 in 1973 to $13 in 1974.

For some reason we're supposed to pretend this had no significant effect on prices in an economy largely powered by oil.

It's baffling that educated adults can still take this seriously.

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> The inflation of the 70s wasn't caused by the cost/availability of credit, it was caused by the fact that oil prices jumped from an average of $4 in 1973 to $13 in 1974.

> For some reason we're supposed to pretend this had no significant effect on prices in an economy largely powered by oil.

Because there are different types, or sources, of inflation:

* https://en.wikipedia.org/wiki/Demand-pull_inflation

* https://en.wikipedia.org/wiki/Cost-push_inflation

* https://en.wikipedia.org/wiki/Built-in_inflation

* https://en.wikipedia.org/wiki/Inflation#Keynesian_view

And not all of them are caused interest rates and the availability of credit.

> It's baffling that educated adults can still take this seriously.

Perhaps the adults who take this seriously have better educated themselves on the topic. If the experts in a field hold a different view than you, it is often prudent to examine whether you're missing something.

Because foreigners don't want pieces of green cotton for their goods, they want things.

If interest rates are low, money is cheap for Americans and they can buy real things with something that is worth less (not worthless) that it was. Its worth less because Americans didnt have to produce to make that dollar.

On top of that, since the dollar is the reserve currency, all the price inflation is effectively diluted among all countries.

So America gets to print its budget deficit and not even suffer as great an inflation. But the price inflation pressure is there, it must be there.

Its what the French called “America’s exorbitant privilege”

As to the oil shock, of course that affected prices. But the embargo only lasted 6 months, didn't cover Europe and oil is fungible (ie Americans can buy Norwegian oil destined to Ireland at a small premium and the Irish buy oil from the Arabs [1])

[1] this is an illustrative example. I don't know or care where the Irish buy oil

This is why central banks tend to look at measures other than CPI when they make their decisions. For example, "core" inflation does not include energy, which is highly volatile and doesn't directly represent the loss of value of the currency.

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