Stagflation Explained - Is This Scourge REALLY Making a Comeback?
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- Опубликовано: 7 июл 2022
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A lot of people are concerned that stagflation is making a comeback. Is this the case, and...what exactly is stagflation? We'll answer these questions and more in today's video.
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Sign up wouldn't take my credit card and the 'contact us' link doesn't work...😭. Any way to actually contact this company? Not sure I want my credit card data with them...
Is there a y way you can give us information on the growing wealth gap and what has been shown to help combat that in history?
Isn’t this evidence that stagflation is just gonna last like 2-3 year instead of a decade “that’s what I predict”🐐
I could not agree more Richard, thank you for another informative video. Frankly, I find peoples lack of concern over Palpatine's return very disconcerting.
I fall on the pessimist side. I feel like the government has been trying to over spend to avoid big recessions for decades. Pain has to be felt at some point. The more we push it back the more it hurts.
If the govt didn’t spend we would be in Great Depression times.
@@SebastianRocks1234 You know government intervention helped to cause and prolong the Great Depression. The New Deal somehow managed to cause a recession within a depression in 1937.
@@johkupohkuxd1697 that was the supreme court
Thanks for being so informing with your channel. Glad I discovered it to help me learn more about these topics.
I was extra stoked when I discovered you live in the same city as me. Always happy to see and be able to support local people with great content. Until now that's mostly been about gaming and music. Educational content on economics is added to the list now. Keep up the good work!
As someone who manages and advises clients for over 30 years, I love your posts and if you are ever in the UK. I will happily take you for dinner and share stories. In this crazy "RUclips world" there are only two people I follow......... You (because you break things down like I do, into small interesting and understandable parts, and Mr Boyle (because of his dry humour)
Once again, a brilliant post.......
It's so refreshing to hear a sober factual informative take on this.
I want to say I appreciate the way you handled your advertisement sponsoring your video upfront and then you tell me when to expect the next mentioning of this advertiser. Very refreshing compared to the other RUclipsrs who try to sneak in advertisement messages without warning so that you can’t skip it
Like Buffett says, you don't need to worry about that if you are productive.
Possibly the most informative RUclips video I’ve seen in months. Good work
Always enjoy a plain bagel video. Thank you for your time
probably once of your best videos, loved every second of it!
Always love your explanations! Such a relief from everything in the news designed to give you a heart attack
Very good video. The knowledge you share is incredible. Thank you!
It's good to hear there's hope that stagflation isn't guaranteed, and we're in a better position than 50 years ago. No excuse to suddenly become an optimist, but the pessimist's view is also overplayed at this time. Here's hoping we ride through this with a measure of grace, even if we have to deal with a recession on the way.
When it comes to the market pessimism is a very short term outlook. That is a fact. I have shorted markets like this and paid a dear price. So if time is on your side always play the long game. Always! Its like inflation it never really goes down only in the short term
Yeah we have fantastic, strong and sound economy, based on fundamentals. We dodged the bullet here, it is terrifying to think how screw we would be if our economy was based in 40% of financial activities and their derivatives, 30% government spending and rest on real economy. Phiew, we are so lucky...
A large chunk of our domestic labour force and of the world wide labour force is retiring. Everything as fast as production is maxed out and the worldwide capital market will suffer the biggest credit crunch in history. Or entire supply chain is teetering on the edge of collapse.
Discussion of monetary policy isn't just irrelevant, it's blinding us from the real problems
Well said! I am also here to learn how to invest after listening to a lady on tv talk about the importance of investing and how she made 7 figure in 3 month, somehow the video taught me nothing and left me even more confused, I'm a newbie and I'm open to ideas on how to invest for retirement
@@ericalorraine7943Think long term, personally i ventured into the market so i won’t be stranded after i retire. A colleague of mine introduced me to CFA " Priscilla Dearmin-Turner " who drew out retirement plans and they all aligned with what i wanted and had to pick one plan and with her exit and entry strategies on commodities , securities and digital assets, my portfolio has really been diversified with good ROI. I am really impressed by how much i have achieved
You cited an article stating that it only takes 43% of a barrel of oil to equal $1000 of GDP while it took 100% of a barrel to equal $1000 of GDP in 1973.
Key question: is that $1000 of GDP in 1973 in 1973 dollars or 2022 dollars?
If those dollars haven’t been normalized, those numbers aren’t very comforting.
Also, the value might be affected by the fact our economy is more diversified
It clearly said in the bottom left that it is in real dollars so yes, it factors in inflation
In the 1970s the UK ALSO EXPERIENCED stagflation. And here in Australia... we were ROARING ALONG, riding high off the development of Japan.
Richard makes an important point which I didn’t learn until experiencing inflation myself. Inflation is about expectations!
Starbucks will raise their damn prices because they know their consumers accept it as part of a national problem
in the 80s they used to think that this was the only problem here in Brazil, so they froze prices multiple times but i never worked. A shock in the economy is also needed, here in Brazil we had 2000% inflation in 1993. Our economists at the time planned very carefully a transition. The day of the currency change (a big shock going from 2875 to a dollar to 1 on 1 with the dolar) happend in the middle of a world cup match so every brazillian was at home watching. We also had a transitional currency that did not change so people got used to prices not going up unless from the end of the year to the beggining of another!
Not really. Starbucks raises its prices because they know that their suppliers will raise theirs. And that the employees will demand higher wages. Ofc they also raise them to keep their margins from falling (customers accepting it as a national problem), but I think it is disingenious to say that is the only reason they do it. Think of it like this; during inflation everything rises in price, even labour (aka wages.) So without defending big corporations too much, its fair for everyone to "pay their fair share" of the effects of inlfation (meaning that businesses raise their prices only about as much as peoples wages increase.) It doesn't really make a difference if starbucks raises their prices by 5% if you also get a 5% raise.
Starbucks can raise their prices as much as they want. If it's too expensive people will just stop buying if they can't afford it. The nastiness is when your rent, energy and basic food go up in price. Then you're stuck with nowhere to go. Even worse if you're out of the job market due to retirement, disease etc. Then you can't just ask for a raise, go on a strike or get hired (try getting hired anywhere to do anything after being out of the job market for a year or many).
great video, glad you covered this
Love your channel. It’s such a gem of rationality in a world of lies and craziness. Thank you!
Your editing is getting punchier and punchier man! Combined with your dry delivery it makes for really entertaining and accessible videos. Really great seeing you push your boundaries Richard, you continue to be one of my favorite RUclipsrs.
What's important to keep in mind is that economic models and theories are just that, models and theories. They are helpful but can't predict the future.
I think this in next decade we will face fundamentally different challenges, like geopolitical shifts, changing climate conditions and the inversion of the demographic pyramid. All these can/will have consequences for the economy and inflation that are impossible to predict.
Anyway great video.
It is good to know that we are still not on a stagflation :)
Great video!
As an Argentine I've lived my whole life in stagflation
Over here in Europe it is probably already there with the energy crisis that is to come this winter. Even worse, the ECB is far behind the FED in terms of combating inflation has to watch out for southern europe. This time it is natural gas, not oil
In France we elected a socialist government in 1981, in the middle of our own stagflation. They came with a crazy program of public spending, etc. They wanted to implement MORE keynesian stimulus despite a 10% inflation. Everything got worse. 2 years later they changed their mind and implemented a new policy - "le tournant de la rigueur" (turn of rigor), including a new economic policy called "désinflation compétitive" - competitive desinflation - not seeking deflation but rather slowing inflation with non-monetary policy making: liberalization of the finance sector, creating firewalls against inflationnist feedback loops (interdiction of automatic wages indexations etc.)...
Since then, France never experienced inflation greater than 2%, until the 2022 crisis. Since the 2009 crisis, we even barely had any inflation at all.
But we endured 20-years long period of unemployment ("the sacrified generation") which went better in the early 2000s but worse again after the 2009 crisis.
and we accumulated since the early 1980s a huge, colossal amount of public debt.
Les francais changent de republique souvent... faire sauter le systeme. Je pense que le Canada va voir un phenomene similaire... comme le Japon, puis la France
Thank you, Keynesian economics are a joke.
France went from around 20% debt to GDP when the socialists were elected in 81, to around 40% when they lost government in 93.
Before the socialists got in, inflation was around 14%. Six years later they took it down to around 2.5%, which is around where they kept it.
Great video!
Thank you!
Awesome video. I didn't know how much less dependent we have become on oil compared to the 1970s. It's still slow for half a decade of time but it makes me hopeful that crude oil and OPEC is slowly losing influence on the global economy. Could you also share the link to the horizon report your referencing in your video?
Rationing something in limited supply & a neccesity like fuel is a tried & true way of preventing it inflating in price.
I've always understood as the economy recovers from a recession you need to increase things like interest rates, Taxes , ETC so that in the event of a recession you have wiggle room to improve the economy. Kind of like raising the floor
I'm just a working dude. I appreciate your content
Thanks!
WOWW THIS IS AN AWESOME CHANNEL AND GREAT CONTENTS ! SUBBED AND LIKED ! A FELLOW CREATOR
The Fed and Treasury were saying that this inflation was "transitory" for so long, that I question if they know more than Plain Bagel.
Their definition of transitory is different from how most of us interpret it. Their opinion was that the factors contributing to inflation would subside, rather than inflation would revert or stop outright. It's normally a curve, and they thought it would start slowing down by now.
They mean “transitory” in the sense of “seriously, how long is this pandemic going to last?” They thought this would be over by now, businesses would reopen and the supply chain issues would be resolved, reducing inflation. Turns out that did not happen
Sometimes what the fed says turns out right not because they knew it but because they said it and expecting it made it real
damn richard's been hitting the gym
Can you please come to Australia and be my finance lecturer, I learn more from your 10min videos then a whole semester at uni.
Podcast! Easier for many
Thanks for the vid, hope we don't get there this time!
Stagflation in the 70es wasn't just an American phenomenon. I'm tentatively optimistic that it won't be as painful this time. If not for any other reason then because we have better models of how the economy works, so we can make better and faster decisions about how to adjust the economy. The counter argument to that is that competing interests now all have better models and tools to weaponize against each other, making markets more volatile.
I remember the 70s and the inflating induced OPEC oil embargo. Ronald Reagan sought to deal with it by ending US price controls on oil. His detractors said that oil prices would rise contributing to inflation. Instead, oil prices and inflation went down. What is needed now is for the economy to adapt to the inflation caused largely by Russia's invasion of Ukraine and to find substitutes for Russian oil.
That's a really nice shirt.
9:40 we also Had that Chance in the 2000s, before the real estate Bubble was so large, as there Were quite a few real estate Bubbles in the USA before. Despite that, the financial Institutions didn't learn...
I haven't finished watching the video, but I would just say that latin america is a very clear counter example for 0:46.
EDIT: I watched the video. Sometimes I have the feeling that people from rich countries have a very optimistic bias regarding things like inflation. Inflation with stagnation happen all the time.
Just search for the countries with higher inflation and check how much unemployment and GDP growth they have.
They ended up like that because unemployment leads to low GDP, which leads to low payroll for the government, which leads to money printing to finance the government spending, which leads to inflation.
If you need 0.43 barrels to produce 2022's 1000 dollars and it took you 1 barrel to produce 1973's 1000 dollars the situation is WORSE and not better, since 43 cents back then are worth much more than 1 dollar right now. We also have new "policies" being implemented where green washing is being used as an excuse to create further scarcity on essentials like food production and housing while not touching discretionary expenditure as much. They should tax flights and leisure more heavily while also passing regulation requiring durable goods to last longer (including longer warranties, for example) while stimulating the production of essentials further, so humanity allocates limited resources more wisely (from a quality of life / freedom perspective). Of course, they're doing it because people will pay as much as they can afford to eat and to have a place to live while they'll just postpone or forfeit anything non essential (some out of necessity, some out of choice, so they can save for a rainy day or an early retirement).
Bell-bottom jeans and corduroy suits are marvelous.
I like your shirt, where did u get it?
You pronounce the "stag" differently than we do further south. Fun.
Kind of a very scary prospect, but probabilistically who knows whether it will actually happen for a long time.
I'm really confused. And I'm old (59). Is there nothing we've learned from the past? The market's been going on for 100's of years. We still can't figure out how to make things work (at least a little better)?
Long story short:
Yes
it'll be a great time to get bonds if we get 25% intrest rates
But economists spent the past decade telling us that unlimited money printing wouldn't have any negative effects....
It's not like every intelligent human on the planet couldn't see inflation coming! It's only central bankers and economists that couldn't figure this out.
The biggest difference now is that there is an incredible amount of debt in the system today. Far too much to raise interest rates enough to control inflation.
1:00 This inflation period is different since the money supply inflation is now the main driver of price inflation.
Nice
For me personally high inflation just kills off my motivation to be productive... Whats the point to work hard and save and invest when the prices of everything just runs away from you anyway?
The difference between Stagflation and Palpatine is that Stagflation makes sense returning, Palpatine did not. In fact, all we got was "Somehow, Palpatine returned"
Hey, corduroy jackets/blazers can be good! ;)
Question: do you think Tiff Macklem and Jerome Powell have the will to stay the course on interest rate hikes to stop inflation?
I just don't see it, they've shown in the past they will blink when they have a recession on the cards, not to mention political pressure. They aren't Paul Volcker.
As you said, last time inflation was this high it took a decade or more to get it down.
Just do experiment and try to assess current inflation using 1970 guidance. Now add 0.5% over your outcome, what would interest rates have to be to suppress inflation? Small spoiler, more than 18%...
Thumbs up for the Palpatine reference. 😂
The Phillips curve and monetary experts like Larry Summers point to the solution of solving high inflation is to increase unemployment. Are there any other solutions or possibilities to get out of high inflation without eroding workers gains through means such as unemployment or limiting wage increases (as seen in late 70s)?
If you accept the premise inflation is "too much money chasing to few goods", you are only adjusting one of the variables via the Fed.
You could also do destructive taxation to reduce the money supply, attempt expanding growth of goods (other commentators have mentioned how backwards the current policy is with regards to this), or even do nothing and let markets achieve more equilibrium.
It always struck me as suspicious that the fix in nearly any crisis is to discipline labor while capital either gets bailouts or otherwise remains unscathed.
Edit- before $7 gas and whatnot, I had opined that the too much money aspect could be seen in other ways- namely the rise of NFTs and the like of excessive capital literally creating new markets for investment. It seems to me that if you had extreme wealth inequality, the effect would be no different than inflation.
Monetary policy is a blunt tool, economists who complain about price fixing miss that setting the base rate anything above 0% is literal price fixing, it's forcing banks to charge interest above the market rate.
The solutions to inflation are to tackle the monopoly roots and bottlenecks via fiscal policy. Regarding the 1970's ,one major cause of inflation was of course OPEC and the energy crisis, the Carter admin responded, albeit too slowly, by deregulating the energy market and some evidence it was beginning to work before Volcker crashed the economy. Whilst oil and other supply shocks can often be exogenous, strutctural approaches can be done to mitigate issues without resorting to the voodoo economiscs
The 70's was a time of much stronger union power, so it is true this monopoly fed into the inflation shock caused by oil prices by creating a wage price spiral, but the over reaction under Reagan/Thatcher over simplifed this to lead to the punishment of labour as the only solution (TINA there is no alternative as Thatcher put it).
The largest component of CPI inflation is 'housing' the US measures it as just over 42%. Clearly rents have been skyrocketing and house prices (not even included in iunfaltion) even more so.
Taxing the 'economic rent' of land would push new supply of housing and stop prices inflating. Indeed when Denmark in 1957-60 threatned to raise their land value tax from 1.2% to 2.6% the land speculators fled the market in anticipation, inflation fell from 6% to 1% WITH unemployment also falling confounding the Phillips curve (which btw Phillips complained was completely misinterpreted and misused as he didn't say there was an absolute inverse relation, only that there was an obseved inverse relation based on the rate of change) . The New York times even wrote an article about the 'miracle' calling it 'Big lessons from a small nation'
Sadly the property lobbyists reversed the tax shift and it was short lived. But hopefully one day we will look back on the ear of deliberatly causing unemployment to stop inflation as a dark ages of economic policy.
Sadly, the current tools to deal with inflation are very blunt. The analogy my dad used when talking about it was that the economy has a steering wheel with three modes: do nothing, maybe go right, and maybe go left.
My countrys central bank has warned about earnings price inflation spiral.
Asking law makers to make changes..
Sooo are we screwed?
I don't understand why the theory of inverse proportionality btwn inflation-unemployment still informs Central Bank actions when the stagflation of the 70s clearly debunked it.
Is the 1000$ per barrel of oil gdp metric taking into account the adjusted price of oil and value of those 1000$? Because if the difference is ~50% between 1970s and now, it doesn't seem like anything changed.
What are some ways to build riches during recession years? I come from a mediocre family, but I am very well connected with investors.
Repeat after me: “This stagflation is transitory.”
I think the notion that stagflation and recession is avoidable at this point is a fantasy at this point. All data is leading to it. Unemployment is not the only stat to be inspected but also job participation. If inflation is not defeated, the resulting stagflation will cause the unemployment to raise, then the padding that allows QT is gone and you start applying it to a damaged economy. Oil is not the only commodity to look at, we have rent inflation moving up over 100% in some areas, food inflation is killing the poor. It took 20% interest rates to kill 20% inflation. We have near 20% inflation now if using the same method of CPI calculation without cooking the numbers, but we have 3% interest rates? We are not in a "maybe" scenario but a "we are fucked" scenario.
unemployment is low but so is labour force participation. How does that factor in to the equation?
We’ve really hit 2 out of 3 categories for stagflation. We have inflation and slow growth. Right now the US gdp is shrinking (2q estimates show more shrinking). It just remains to be seen if unemployment starts to respond. The fact the Fed is tackling this in some form now is good. As long as the Fed does it’s job namely ensure stable monetary policy and doesn’t dabble in social or environmental issues we should be ok.
We have a tight labor market and suppy chain issues. That's the real problem. In the past five years wages for starting warehouse jobs have gone from around $13/hr to $20.00 hr.
You mean Social and Environmental issues like the passage of "H.R.2543 The Federal Reserve Racial and Economic Equity Act" by the House in June? Which would compel the Fed Board to take actions to encourage lending on the basis of Race?
@@adennjusik5455 Federal Reserve Racial and Economic Equity Act
This bill requires the Federal Reserve Board to carry out its duties in a manner that supports the elimination of racial and ethnic disparities in employment, income, wealth, and access to affordable credit. The board must report on disparities in labor force trends as well as on plans and activities of the board to minimize and eliminate these disparities.
@@jamesbaxter222 I read the bill. In other words ESG crap the Fed should not be involved in, because it presents a competing priority with stable monetary policy and controlling unemployment which the Fed should not be involved in either. Just more Institutional Racism brought to by Democrats.
Really well done 👍 Informed, fact based and not filled with hysterical nonsense! I like this guy’s style.
Let's be a bit more ambitious. If the Philip's curve can be broken for stagflation, then can we also break it for a low inflation high employment environment? I suppose that would be with a supply side glut.
He forgot a 5th difference;
Most countries wont experience unemployment but a shortage in labor due to the aging demogtaphic (EU, Japan, China)
isnt oil just replaced by semiconductor chips ? where every country is dependent on taiwan for chips?
We have to be in a much worse position now because the amount of debt in the system. Raising interest rates is going to push up the cost of living as many people live on debt.
Anyone interested in learning more about the topic should read Agustin Carstens' (GM at the Bank for International Settlements) comments in the BIS 2022 Annual Economic Report. His view is that, on the long run, letting inflation run rampant (into double digits) is far more painful to an economy than shocking the economy into a recession via interest rate hikes.
Do you think with the fuel prices and potential food crisis we are being told about that the chance of hyperinflation has increased?
I think we will have some pain but then it will go back to gain.
To conflate ‘unemployment’ rate with vacant jobs an inductor of real unemployment makes no sense
bring it on !! im short so pleas give me a recession
Corduroy Suits could be the new NFT
I'm betting on macrame futures.
Why you hating on corduroy suits? 🤣
I want more intrest rates
Wouldn’t you say the energy price stabilising did more for inflation than any gov or central bank ? It’s the main cause just like today
NOT A SINGLE MENTION OF DEBT AS % OF GDP... WE ARE IN A MUCH WORSE PLACE THAN THE 70s
Great video I wish it was 2022 2024 and it’s looking bad
Have these looming issues changed your financial actions in any way this year?
We all know the Fed won’t keep hiking interest, it’s not even 2% and people are already gone crying of pain while the 1970 interest was 20%. So we already know fed will back off and let inflation keep going and results in a stagflation maybe 2023. There is always a delay between fixing supply chain and how economy responds. Even if oil is no issue, the fear itself can make stagflation happen, at least for a short while until supply catches up.
I really miss the times when inflation was transitory 😂
07:53 i hope that factors in inflation while denominating in usd
It says in the bottom right, in red, "in real terms," meaning these numbers factor in inflation.
I think it's technically a combination of "stagnation" and "inflation", but that's a nitpick
Well, a stagnated economy and inflation.
@@artarealmblazer8452 sure, but you could as easily say "well, a stagnated economy and an inflated currency". I think that the term "stagflation" is specifically playing on the words "stagnation" and "inflation", no matter how you choose to express the concepts.
Printing money and stimulus causes inflation, not employment. Employment is effected by stimulus that’s why they correlated. But people mess up the cause/effect relationship.
There will be pain in near future. I hope it will not be like 70s & 80s.
The biggest red flag when you compare with 1970s, Crazy debt, you think they can afford to raise rates to bring down this Monetary + supply shock inflation...if you raise interest rate----inflaiton comes down... + economy slows down....debt becomes a big burden.....well ...reality is they cant do it beyond certain level..........what they will do according to me.....they will increase nonstop....crash $.....create a digital $ and wipe out debt....this is the only option they have....they cant service that debt with high interest rates.... they will say people are spending crazyly and this recession/depression is due to this.....using this spending as excuse they will implement Digital $.......then they can monitor each and everyone...how they are spending....
Thanks for this new video! That was really interesting and educational.
I don't know enough to have an informed opinion on this, but I _hope_ they can bring down inflation fairly quickly and return us to smoother economic sailing soon. A short recession might be worth it if that's the price for avoiding the specter of stagflation. From my perspective we've already been in a recession since at least January anyway.
It's not interest rates that needs to go up but money printing has to stop or what happened in Germany before WWII will happen in the western economies. You cannot print money as a way out of the current financial deficit. That is why Gold, Silver, Bitcoin, Ethereum and XRP has value since you cannot print more of these things. Inflation of the price of things is caused by excess of paper money vs the real value of goods and services. In Germany a wheel barrow full of money was used as fuel instead of money. Even a 10 year old kid can understand these basic concepts.
We shut down productivity, keep risk rates low, and flooded monetary supply.
Acting like it is oil related and not lockdowns is crazyz
Welp, time to short some stocks
Scarce labor from low unemployment?
I'm confused 30 seconds into the video
Sorry I should clarify; when unemployment is low, NEW hires are hard to come by
@@ThePlainBagel Ahhh, that makes perfect sense. Thank you very much.
I know this isn't going to be popular, but what if we did tax increases instead of interest rate hikes to control inflation this time? The whole concept of rising interest rates and quantative tightening is to pull all that money we printed back out of the economy and stabilize the value of the dollar, but if those dollars were going back towards things like road infrastructure, teachers and alternative energy, we would be creating more government jobs and redistributing the cash pool so it doesn't centralize. And in true moderate spirit, we maintain relatively loose regulations to encourage growth in those sectors. Just a thought, but I'll wait for the wave of trolls to tell me it's stupid.
Tax increase could theoretically work but good luck getting it through any parliament. One reason for having a central bank who is independent is that they can do unpopular things such as rising interest rates while peoples’ incomes are hurt by inflation making it even tougher for them.
the economy will get hurt either way. If it is the case, why choose a novel approach with an unknown risk anyway? Furthermore, stimulating the economy while still hoping to bring down inflation will only increase the chance of stagflation happening.
Increasing taxes would increase prices even more.
Teachers are an ongoing cost. So you want to cut spending for them once this is over?
@@tomlxyz No, I think taxes should stay at sustainable levels. We haven't seen any major restructuring to the tax system since Ronald Regan was president. And while I think he had great virtue in his theory of trickle down economics, the clear division of wealth inequality clearly indicates that his approach did not have the far reaching, long lasting effect he planned for it to have. Changing tax structure is going to always piss somebody off, but California is always willing to experiment with these things, so we could always do a trial run of a progressive tax structure and wealth tax (rather than income, so people quit dodging taxes in hedge funds, further exasperating inequality) and see how it pans out. The unfortunate part is, tax structures need to be in place for decades to get any useful data on their impact. I'm all for sticking with our conservative tax structure if anybody can prove there is virtue to it, but thus far, it's been a let down.
@@vietanh2101 We are currently still using the Regan tax structure from the 1980's but before that, we did have other tax structures in place, so this wouldn't be anything new. At least this way, we can take the tax revenue and use it to balance the budget. Higher interest rates have the opposite side effect because the cost for the feds to run a deficit increases as rates increase, further exasperating the efforts to balance the budget.