inflation question
- Thread starter z32000
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1. Inflation gives the appearance of growth + masks poor and greedy financial policies by government. It often "appears good", but never is. Inflation is a policy and mechanism whereby government absorbs [aka confiscates, steals] the wealth of its citizenry with few of its people realizing they are being victimized.
2. Government is responsible for inflation, so other than occasional, unintended disruptions in "government's plan", the answer is NO.
2. Government is responsible for inflation, so other than occasional, unintended disruptions in "government's plan", the answer is NO.
Positive and negative, or good and bad are the two sides of the same coin. I suggest never try to isolate them. You cannot have one without the other, it just depends on the point of view or perspective.
Having said that, inflation is the worse enemy of capital as money loses its purchasing power under such economic conditions.
The other side of the story is that inflation is effectively a wealth redistribution mechanism. Money flows from lenders to borrower during inflationary periods.
This is what is happening around the World and especially in the US at this point. Expectations of rising inflation due to rising commodity and energy prices caused panic borrowing by people who expect to pay back with inflated currency.
the big mistake was that in the face of such high commodity and energy prices interest rates should have been double but you may go ahead and blame the FED for playing politics instead of exercising sound monetary policy.
Ron
How in the world is government responsible for inflation?
The Fed is about as federal as FedEx.
This is true only in underdeveloped countries. You cannot fool economists in developed countries by inflating money and calling it growth.
Actually this is true only in the case of the 5% who control 95% of wealth. The rest may benefit from inflation.
You could say that, I agree...
Ron
As the argument goes in most economics classes;
Inflation is good for the borrower. If I borrow $10K today and I'm on a 10 year payment schedule, the loan payment becomes easier for me to pay back each year. It is expected that my pay increases each year in a free market. If my pay increases 3% annually, then after 5 years each paycheck should be 16% larger. My fixed loan payment hasn't increased though, so it becomes easier for me to stay current on my payment.
IOW, inflation means fewer defaults by borrowers.
OTOH, negative inflation (or deflation as some call it) means the opposite. Each year I have a smaller paycheck with which to make a fixed loan payment. In debt ratio terms, I am now taking on more debt each year involuntarily.
A vast majority of economists support the idea that moderate inflation is best. This is because as mentioned, inflation is good for the borrower and bad for the lender. If the borrowers stay current then the lenders shouldn't have problems. If inflation really gets going, the banks might start to have trouble, but then the government can jump in and help them. Conversely, with nagative inflation, the borrowers are hurt and stop their payments. This in turn hurts the lenders also because they were only helped by negative inflation if the borrowers continued to pay. It is then very difficult for the government to jump in and try to prevent mass defauts on loans.
It is supposed that the money supply should at least stay ahead of output increases. This is intuitive because it wouldn't work very well for us to keep the money supply constant for long periods of time. We now have a population in the US of over 300 million. 100 years ago it was less than 1/4 of that. Eventually we are spreading a limited quantity of coinage over a population that is much too large.
As to your second question, inflation has a lot to do with market forces. You can eliminated inflation by eliminating free markets. Is that what you would like to do? Check out East Germany and the Soviet Union before the fall.
In most 3rd World regimes, the government simply prints currency.
In the US, Gummint engages in a big ruse. That is, "have a debt limit and borrow". They NEVER intended to repay borrowed sums with original buying power... rather, simply print fiat to repay debts... that's INFLATION & CURRENCY DEBASEMENT.
The Gummint and Fed are twin heads of the evil serpent of inflation.
There's a lot of oversimplification going on here imo. Inflation isn't always good for lenders:
http://en.wikipedia.org/wiki/Savings_and_loan_crisis
Furthermore, inflation and high rates is very bad for the stock market and corporations in general. So this will not necessarily lead to a high transfer of wealth from poor to asset holders.
http://en.wikipedia.org/wiki/Savings_and_loan_crisis
Furthermore, inflation and high rates is very bad for the stock market and corporations in general. So this will not necessarily lead to a high transfer of wealth from poor to asset holders.