Why does the fed feel inflation is a good thing?

[Pine Barrens Mafia]

Why is it that the government seems to believe 3% annual inflation is ideal? Isn't the weakening of purchase power a BAD thing on the whole?

[meazza]

Why is it that the government seems to believe 3% annual inflation is ideal? Isn't the weakening of purchase power a BAD thing on the whole?

 

 

Inflation is inevitable, what they want is that it is predictable.

[Pine Barrens Mafia]

 

Inflation is inevitable, what they want is that it is predictable.

 

Tell that to japan. Also, follow up question...why MUST it be inevitable? Is it just the nature of our valueless currency?

Edited July 12, 2016 by joesixpack

[Nanker]

I guess it represents growth and an expanding economy.

[meazza]

I guess it represents growth and an expanding economy.

 

 

Bingo.

[Pine Barrens Mafia]

 

 

Bingo.

 

So it has nothing to do with the over-printing of paper money?

[meazza]

 

So it has nothing to do with the over-printing of paper money?

 

That as well but generally, inflation follows an expanding economy. Wages increase because employers are making more money, employees demand better compensation, buy more blow and hookers and there you go, inflation.

[Pine Barrens Mafia]

 

That as well but generally, inflation follows an expanding economy. Wages increase because employers are making more money, employees demand better compensation, buy more blow and hookers and there you go, inflation.

 

Then explain how inflation increases during periods of wage stagnation, like we see today. Real wages haven't increased more than 1% a year or so for as long as I can remember, yet inflation (officially, though I think it's higher) has been 2-3 times that.

[meazza]

 

Then explain how inflation increases during periods of wage stagnation, like we see today. Real wages haven't increased more than 1% a year or so for as long as I can remember, yet inflation (officially, though I think it's higher) has been 2-3 times that.

 

1%?

 

http://www.tradingeconomics.com/united-states/wage-growth

Edited July 12, 2016 by meazza

[Pine Barrens Mafia]

 

1%?

 

http://www.tradingeconomics.com/united-states/wage-growth

 

Wow. That's a national average I'm guessing. If so, I'm also making the supposition the rate is much higher in major cities like NYC or San Francisco than elsewhere.

[keepthefaith]

 

Then explain how inflation increases during periods of wage stagnation, like we see today. Real wages haven't increased more than 1% a year or so for as long as I can remember, yet inflation (officially, though I think it's higher) has been 2-3 times that.

Inflation has been very low in recent years. Companies that are in a position to raise prices do. Sometimes passing on increased costs. Sometimes as a tool to grow their business. Competition tempers it some.

[DC Tom]

 

So it has nothing to do with the over-printing of paper money?

 

Inflation can be caused by different things, and the nature of the causes determines whether or not it's "good." A slight amount of inflation in a growing economy is a good thing, since it ultimately represents demand. Inflation in a stagnant economy, on the other hand, represents an increasing money supply without real growth (because, say, the Fed decides to use Enron's accounting practices) or situations where you get a sudden, severe bottleneck in resources that drives up prices while driving down productivity (the oil crises of the 70's).

 

Deflation, on the other hand, is just bad. Even if it seems good, because goods become more affordable, it ultimately leads to wage constriction and unemployment as employers see their revenue fall.

[Pine Barrens Mafia]

 

Inflation can be caused by different things, and the nature of the causes determines whether or not it's "good." A slight amount of inflation in a growing economy is a good thing, since it ultimately represents demand. Inflation in a stagnant economy, on the other hand, represents an increasing money supply without real growth (because, say, the Fed decides to use Enron's accounting practices) or situations where you get a sudden, severe bottleneck in resources that drives up prices while driving down productivity (the oil crises of the 70's).

 

Deflation, on the other hand, is just bad. Even if it seems good, because goods become more affordable, it ultimately leads to wage constriction and unemployment as employers see their revenue fall.

Thanks.

[unbillievable]

Inflation also decreases the impact of long term debt. This has the effect of promoting the use of credit while discouraging stagnant hording of capital. If you stash your money under the mattress, it will depreciate with inflation, but it's the same with a mortgage loan; making the principle easier to pay off over time.

 

Unfortunately, this is also the foundation of current government spending. They push the fed to create more money, to increase inflation, so the national debt will seem more manageable.

[Pine Barrens Mafia]

Inflation also decreases the impact of long term debt. This has the effect of promoting the use of credit while discouraging stagnant hording of capital. If you stash your money under the mattress, it will depreciate with inflation, but it's the same with a mortgage loan; making the principle easier to pay off over time.

 

Unfortunately, this is also the foundation of current government spending. They push the fed to create more money, to increase inflation, so the national debt will seem more manageable.

How's that working out