The fallacy in Jones’s argument should be evident. Interest rate increases, without a subsequent rise in economic growth and wages to support higher borrowing costs, slows economic activity. Slowing economic growth leads to increased unemployment, thereby reducing inflation and interest rates.
The Japan Experience
Furthermore, Jones’ example of the “Japan experience” with debt fails to support his concerns. In Japan, high debt levels did not lead to runaway inflation or surging interest rates. Despite a 250% debt-to-GDP ratio, Japan faced persistent deflation and falling interest rates for the past 30 years. The debt problem was compounded by weak demand and an aging population. Those factors, when combined, suppressed inflationary pressures despite aggressive monetary easing