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I am seeing all over people discussing inflation as if it is the end all cure for fixing the economic woes of this country.
I use the AC because it's hot outside. It's not hot outside because I have the AC on.
Inflation is the effect of the economic cycle. It is not the cause of the economic cycle.
Cause and effect is a very important concept to understand, and we are heading down a dangerous path here. This is an academic experiment with our currency, being funded and tested by the fed. We are experimenting with the concept of using the printing press to warm up the economic temperature. The fed is not looking to stop deflation. It is looking to CAUSE inflation in times of stagnant growth.
Typically prices go up with higher demand and trace lower with less demand. This is normal and makes perfect sense. As fewer goods are able to find homes, then prices need to drop. But, causing the price to raise without the market forces, ie without demand places the economy in a dangerous position when a recovery emerges.
At some point the economy will rebound off the L shape curve. If the starting inflation rate is 3% with flat demand, what happens when demand is increased a significant amount and the supply and demand shifts to the right?
One of 2 paths can be taken. First option is to raise taxes and interest rates. This will act as breaks on the economic cycle slowing growth keeping unemployment high and in effect remove spending power from the consumer... as these are things which are done to keep inflation in check.
Option 2 is to do a little of the above or nothing at all. If 3 percent inflation is ideal and we are at 2 with no growth, then we would have to accept much higher levels of inflation in the future which according to the current stated opinion would not be ideal either.
Economic cycles are normal. The past 15 years the government has manipulated the currency and lending rates to help smooth out the econonomic cycles. We accepted inflation and increased debt for mild recessions at least 3 times. Now we can't take on anymore debt to grow the economy. The shrinking economic cycle typically causes decreased debts and increased savings which are then the stimulus in the next uptrend in the cyclical wave.
We minimized the contraction part of the equation 3 times. Logic would dictate a prolonged deep recession to make up for the missed 3. Which begs the question what happens if we can successfully minimize this 4th one?
We are trying to quick fix this. This can not be quick fixed, and needs to play out in a more traditional sense so we do not risk tomorrow for today's gains... With hind sight it is easy to see how the "lost decade" played out. Why do we need to repeat the same mistakes?
I use the AC because it's hot outside. It's not hot outside because I have the AC on.
Inflation is the effect of the economic cycle. It is not the cause of the economic cycle.
Cause and effect is a very important concept to understand, and we are heading down a dangerous path here. This is an academic experiment with our currency, being funded and tested by the fed. We are experimenting with the concept of using the printing press to warm up the economic temperature. The fed is not looking to stop deflation. It is looking to CAUSE inflation in times of stagnant growth.
Typically prices go up with higher demand and trace lower with less demand. This is normal and makes perfect sense. As fewer goods are able to find homes, then prices need to drop. But, causing the price to raise without the market forces, ie without demand places the economy in a dangerous position when a recovery emerges.
At some point the economy will rebound off the L shape curve. If the starting inflation rate is 3% with flat demand, what happens when demand is increased a significant amount and the supply and demand shifts to the right?
One of 2 paths can be taken. First option is to raise taxes and interest rates. This will act as breaks on the economic cycle slowing growth keeping unemployment high and in effect remove spending power from the consumer... as these are things which are done to keep inflation in check.
Option 2 is to do a little of the above or nothing at all. If 3 percent inflation is ideal and we are at 2 with no growth, then we would have to accept much higher levels of inflation in the future which according to the current stated opinion would not be ideal either.
Economic cycles are normal. The past 15 years the government has manipulated the currency and lending rates to help smooth out the econonomic cycles. We accepted inflation and increased debt for mild recessions at least 3 times. Now we can't take on anymore debt to grow the economy. The shrinking economic cycle typically causes decreased debts and increased savings which are then the stimulus in the next uptrend in the cyclical wave.
We minimized the contraction part of the equation 3 times. Logic would dictate a prolonged deep recession to make up for the missed 3. Which begs the question what happens if we can successfully minimize this 4th one?
We are trying to quick fix this. This can not be quick fixed, and needs to play out in a more traditional sense so we do not risk tomorrow for today's gains... With hind sight it is easy to see how the "lost decade" played out. Why do we need to repeat the same mistakes?
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