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Posts Tagged ‘inflation’

Inflation – Part 2

March 26, 2012 Leave a comment

In part 1 I (hopefully) illustrated the point I was trying to make, which is that a low stable and predictable rate of inflation is actually preferable to a no inflation state, primarily because it encourages consumption and give policy makers some space in which to influence the economy. I’m sure the libertarians and free-market dogmatists will object, but I will have to leave that discussion for another time. In this post, I want to discuss the money supply and it’s effects on inflation. It will probably get more technical later in the post, however I’m sure you can follow along with some simple algebra and I will try to explain everything in laymen’s terms as much as possible. I’ll also try to pretty this post up with some charts.

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Inflation – Part 1

March 20, 2012 Leave a comment

Before I get into too much detail on how the government spends and why it should (or shouldn’t), I think it’s best that I cover inflation. I will divide this up into 2 posts. This first post will be more of an overview that will introduce the reader to the various topics concerning inflation.  Part two will be a more in depth look at causes and effects and will include more discussion of how government policies work (or don’t work).

Introduction

Current political and economic discussions about with fears of the national debt and large national deficits. As I discussed in my previous post, these fears are irrational to the extent that there is no solvency concern for the U.S. or any other government which has sovereign control of its own currency. It can never “run out of money” as some many politicians would like you to believe. While there might still be some people who refuse to admit this fact, I think most people will readily agree that, in reality, the government has an infinite supply of its own money. However, most people (especially the conservatives and libertarians) quickly jump on the hyper-inflation bandwagon. The thought process goes like this, “OK fine, in theory government has unlimited supply of money, but in reality, if government keeps ‘printing money’ we will eventually see inflation and if the spend too much we’ll get hyper-inflation like Zimbabwe or Wiemar Germany.”

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