Why do people think Inflation is so bad?

I'm not saying there aren't people hurt by inflation. My point is that prices do not just magically rise. There are real fundamentals that go in to prices. And everything you listed still only includes the customer... what about all the producers, the oil companies, or the land owners who are getting more money for their goods and services?

Your reasoning is still not one that makes me believe less inflation is better for the economy and that we should not dump a trillion or two trillion dollars in to the economy right now.

 

There are some who would say inflation is bad for the following reasons:

1) It robs money holders of purchasing power, effectively stealing their stored wealth.

2) It artificially reduces interest rates, initiating a boom that inevitably results in a bust.

 

No you are not a lender. That is a myth. When you put your money in a savings account it simply just sits in a computer and they just increase the digits in your account. Banks do not need your money in order to lend money. And the reason you put it in a savings account that pays interest is because of inflation. You want your money to make money. What would the interest rate be on savings accounts if there wasn't inflation? Who would want to borrow money if they knew it would be harder to pay back in the future?

 

So those are some negative effects to inflation. What is your solution that doesn't have negative effects on anybody?

And it doesn't steal wealth. I hate when people say that. Just because you store your money in a mattress and I go out and put my money to use and make more money allowing me to pay more for goods and services does not mean I stole anything from you. It simply means more people can afford paying higher prices.

 

SOME people are making more money - the corporate executives in the financial sector are doing especially well - it's REAL WORKING PEOPLE who are struggling to get by on their stagnant wages. Inflation helps the wealthy and hurts the poor! It's the most regressive form of wealth redistribution in existence, and you LOVE it!!!

WOW!!! Really!?

Yes, "plenty" of people can "afford" to pay higher prices. Doesn't change that fact that MILLIONS are struggling even harder to make ends meet because of larcenous monetary inflation.

 

investments grow, debt shrinks (the people that own that debt do not like inflation)

example, the federal reserve would hate inflation as they own a lot of debt


.

 

I've made more money every year for the past 5 years. I am not a corporate executive or in the financial sector. I'm a REAL WORKING PERSON. So you still haven't provided a solution. What if deflation takes someones wage away completely rather than just losing some purchasing power because of inflation?

Sometimes I gotta make things simple for you to understand

Of course not... but what is the solution to those millions struggling? Why not dump a trillion or two trillion more so those individuals can have a chance to make MORE money? But nope, you want to go in the opposite direction and starve them even more.

My point about this is that inflation helps many families and many working people out. I have yet to hear a reason that deflation would help the economy out more than inflation. Just because prices are decreasing doesn't mean the economy is better off.

So you can cherry pick data on the bad aspects of inflation all you want, but until you give me a solution that doesn't have a negative affect on anybody, I will continue going with what has worked for me.

 

The higher inflation rises, the harder it will be for the poor and middle class to survive. They won't be able to buy more stuff, and that will hurt the economy. And what about the elderly living off of social security, something they paid into all of their lives? You're hurting the worth of their dollar.

 

Isn't social security adjusted for inflation? The amount they are getting far exceeds the nominal amount they paid in. This would actually be a plus for the inflation crowd!

And I'm not asking for HIGH inflation. I'm asking for a trillion or two trillion dollars more causing more inflation. And I'm making a case for the fact that not everyone is hurt by inflation. In fact many people benefit from inflation.

 

The solution is to abandon the paradigm of economic central planning. The value of monetary units isn't some simple binary proposition where "inflation/deflation" can be generalized to every situation with good results. Some people may value an inflationary and flexible monetary unit (like Federal Reserve Notes) while others may value a more stable, more liquid monetary unit (like physical gold). The problem is that people are not allowed a choice. They are legally obligated to transact in Federal Reserve Notes and they have absolutely no say in the management of their currency. Markets will allow each individual to choose their preference in currency. You would be at liberty to use USD and I would be at liberty to use Gold and Silver certificates. Each of us would be satisfied and neither of us would even have to argue about monetary policy!

It's not "inflation paranoia". Food and energy prices are steadily rising. The working classes are losing jobs and relying on stagnant wages. It's real life suffering.

 

Everyone keeps picking apart the negative aspects of inflation... yet I have not heard of one alternative that would produce no negative effects on anybody. Anyone have a solution that people across the world don't know about that would help everyone out?

 

Hmm - look up "time value of money" some time. Even without inflation there would still be interest rates. It's been a while since I took Econ 101, but I'd recommend reading up on nominal vs. real interest rates and how expectations for inflation are factored in.

 

What you just described is not inflation, nor does it steal wealth from anyone.

When you said "inflation" I made the (possibly erroneous) assumption you meant monetary inflation, which is an activity can only be carried out by a monopoly money provider (a government). When the money provider raises the supply of money, each monetary unit falls in price. Thus the money provider, by producing more money is destroying value held by existing money holders.

 

How and why would this produce more efficient results? I would say this would cause mass depression and turn our current economic woes in to a period of luxury.

Yes, and people can steadily afford higher food and energy prices. I'm not seeing this "real life suffering". Every where I go stores are jam packed, gas stations are packed, cars are everywhere. If there was real suffering, this would be an impossibility. My point is that even though people are complaining there is still enough demand out there to afford these high prices. I'm speaking about real fundamentals, you are diving in to some philosophical babble about "suffering" even though there is no real evidence of "suffering".

 

Yes, a free market in money.

 

The problem is that even when you do dump money into the economy you put it in the wrong places, i.e., in a banker's pockets. A REAL "common sense" approach would have been to just pay off people's mortgages with the QE. At least that would have helped people and provided a logical mechanism to reboot the economy. Instead, it just helps make bankers richer while the rest of us get poorer. The system you support is a farce!

 

How about a law that would mandate that if a company wants to raise its prives along with inflation it must also raise its wages to an equal degree, because until that happens the negatives outweight the benefits.

 

So those people on unemployment, welfare, food stamps, etc... don't actually receive the money? What you are talking about here is a conspiracy. I don't deal with conspiracies.

And the Fed can't pay off people's mortgages. The Fed has very limited ability to help out the private sector other than making credit easier to get.

 

Because markets are demonstrably better at pricing and allocating goods and services.

Of course you would say that. You have no idea what you're talking about.

Yes, they can afford LESS AND LESS goods and services as times goes by, which means their standard of living is going down. Basic economics.

 

Over 11% of workers in this country make over $100,000. Over 50% of households make over $51,000 a year. I don't get how the negatives outweigh the benefits. The data is just not in your favor.

 

And those people spend money, do they not? Are their wages increasing at the same rate that the prices of the goods and services they buy?

If the answer is "no", then our monetary policy is literally stealing from them.

 

WOW! Good for you! We're all so happy for your continued success. Must be nice!

The solution is to abandon the central planning model that is responsible for asset bubbles and inefficient monopolies.

 

Quick comment on this - Quantitative Easing effectively did what you suggest. It injected a lot of money into the economy. So far it has not resulted in high inflation because there is an expectation that the Fed will reverse course, and expectations are what really matter when it comes to interest rates and inflation. If the Fed's stated intention to reverse course were no longer credible, you would see much higher inflation. There has been some speculation that another round of QE might be in our future, but at its most recent meeting the Fed decided to just continue Operation Twist. So what you are suggesting with respect to "printing more money" has already happened and they've considered doing more. That said, all the economists generally agree that higher inflation is not desirable.

 

But they can afford it, that's my point. And inflation would help this group out tremendously. I would love inflation, I would love to see my portfolio, house, and other assets rise in price. There's a difference between people complaining about higher prices than people not being able to afford something because of higher prices. Do I like putting $80 to fill up my gas guzzling SUV every week... absolutely not, can I afford it? Sure.

My point is of common sense. You still have yet to provide me a solution to everyone's problems.

 

Quantitative Easing DID NOT inject a lot of money in the economy. In fact it did very little for the real economy. It injected a lot of reserves in to the banking system, that is about it.

All the Fed is trying to do now is drop yields on treasuries so people stop investing in them and put their money elsewhere. The Fed can not do that much... it comes down to Congress and fiscal policy.