Econ heads come explain inflation to me

[BlvdBrawler]

I just saw a headline stating "Fed worried inflation may be too low". I don't pretend to understand the economy at all, but why is low inflation a bad thing? Don't we want our money to maintain it's buying power? Make it simple for me brehs.

 

[YouMadd?]

When inflation is low, interest rates are high. When it comes to the Fed reserve and the economy, it is a balancing act of sorts...

Low inflation=higher interest rates=less money being borrowed=less money in the market=demand goes down=prices go down

high inflation=lower interest rates=more money being borrowed=more money in the market=demand goes up=prices go up

 

[69 others]

I just saw a headline stating "Fed worried inflation may be too low". I don't pretend to understand the economy at all, but why is low inflation a bad thing? Don't we want our money to maintain it's buying power? Make it simple for me brehs.

well inflation is a general rise in prices of goods over a period of time and it's usually goes up due to consumer spending. low inflation is the opposite of course and it can signal a stagnant or shrinking economy

 

[YouMadd?]

well inflation is a general rise in prices of goods over a period of time and it's usually goes up due to consumer spending. low inflation is the opposite of course and it can signal a stagnant or shrinking economy

Exactly, usually higher inflation leads to lower interest rates, which leads to money being easier to borrow, more money in the market, higher prices on goods..

If interest rates go up due to low inflation, that means less money can be borrowed, less money in the market, etc...


Then there is stagflation, which is a whole different monster...

 

[BlvdBrawler]

well inflation is a general rise in prices of goods over a period of time and it's usually goes up due to consumer spending. low inflation is the opposite of course and it can signal a stagnant or shrinking economy

Ah I gotcha. I always thought of inflation as the actual de-valuation of currency, but the way you put it here "the general rise in prices in goods" makes more sense. Thx breh.

 

[69 others]

Ah I gotcha. I always thought of inflation as the actual de-valuation of currency, but the way you put it here "the general rise in prices in goods" makes more sense. Thx breh.

that's actually another way to think of it cause with inflation the money you have today would be worth less since you can purchase less with it in the future with inflation

 

[Field Marshall Bradley]

Would it be safe to say that controlled inflation while good for the economy perse, only truly benefits a small segment of the population and not consumers in general?

 

[Shogun]

 

[john goodman]

More inflation = more goods produced here = more jobs

 

[Black smoke and cac jokes]

Would it be safe to say that controlled inflation while good for the economy perse, only truly benefits a small segment of the population and not consumers in general?

ugh no, controlled inflation would benefit the general public overall since an increase in wages (price of labor) and increase in price of goods and services simultaneously benefits the overall economy.

Why would it only benefit a small segment?

 

[Black smoke and cac jokes]

When inflation is low, interest rates are high. When it comes to the Fed reserve and the economy, it is a balancing act of sorts...

Low inflation=higher interest rates=less money being borrowed=less money in the market=demand goes down=prices go down

high inflation=lower interest rates=more money being borrowed=more money in the market=demand goes up=prices go up

Not always true brotha!

 

[Domingo Halliburton]

Exactly, usually higher inflation leads to lower interest rates, which leads to money being easier to borrow, more money in the market, higher prices on goods..

If interest rates go up due to low inflation, that means less money can be borrowed, less money in the market, etc...


Then there is stagflation, which is a whole different monster...

We've had near zero interest rates for awhile now, so where does low rates/ low inflation fall into your neat little model?

 

[Field Marshall Bradley]

ugh no, controlled inflation would benefit the general public overall since an increase in wages (price of labor) and increase in price of goods and services simultaneously benefits the overall economy.

Why would it only benefit a small segment?

Wages have been kind of stagnant for the most part, wouldn't you agree?

Minimum Wage Would Be $21.72 If It Kept Pace With Increases In Productivity: Study

http://www.cnbc.com/id/48130116

http://www.raisetheminimumwage.com/facts/

So if the cost of goods\services\education keeps going up but not wages, doesn't that hurt most of the working class?

 

[Darth Nubian]

The money has to be inflated in order to pay off the debt. Whats 16 trillion when bread costs a thousand.

 

[YouMadd?]

We've had near zero interest rates for awhile now, so where does low rates/ low inflation fall into your neat little model?

Well, it isn't my "neat little model"... I didn't create the Money and banking system

I think you are referring to the "Nominal" interest rate, which is at like .5% or something like that. Ben Bernake created the "Zero Interest Rate Policy" back in 2008, which kept it low...

The Nominal Interest rate is the rate taken without inflation/deflation. However, the "Real Interest Rate" is the rate that is directly affected by inflation and deflation.

Real Rate= Nominal Rate- Inflation Rate

In general Deflation or "low inflation" leads to low Nominal rates, but higher Real rates...

Not always true brotha!

Yeah no doubt... There are other situations like Stagflation and hyperflation, that should be accounted for as well. I was just giving a general idea of the model...