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Why is everything going to shit? (feddit.de)

submitted 1 year ago by [email protected] to c/[email protected]

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Was just trying to explain to someone why everything is going to shit, specifically companies, and realized, I don't fully get it either.

I've got the following explanation. The sentences marked with "???" are were I'm lost. Anyone mind telling me, if they're correct and if so, why?

The past few years, central banks were giving out interest rates of 0% or even negative percentages. Regular banks would not quite pass this on, but you could still loan money and give it back later with no real interest payments.

This lead to lots of people investing in companies. As long as those companies paid out more money than those low interest rates, it was worthwhile. But at the same time, this meant companies didn't have to be profitable, because they could pay out investors from money that other investors gave them???

This has stopped being the case, as central banks are hiking interest rates again, to combat inflation???

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[–] [email protected] 8 points 1 year ago* (last edited 1 year ago)

Very generally, you use the central bank rate to control the money supply. You increase it to remove money from the economy.

Even money is affected by supply and demand. Too much money in the economy is one of several things that can cause inflation -- for example because a surplus of money means people value money less and goods/services more. As a result, the value of goods/services as measured in money goes up.

Sadly, these are macro-level problems. Personally having a surplus of money sounds great, but the actual amount of extra money I made during Covid was not that much -- but give that much money to 100 million people and you're going to have inflation (I live in Vietnam where the economy was not seriously impacted).