Quote:
Originally Posted by hitpausebutton2
If your sitting on alot of money in the bank or couch, are you the partial reason for inflation?
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No.
Monetary Inflation is the result of a decline in the currency's inherent value. Ideally, you want your currency to equal your GDP: the goods and services you produce.
We can show this mathematically:
1,458,300,000 GDP Units / 1,458,300,000 Currency Units in Circulation = 1 GDP/Currency
That's what you want.
What if we reduced the amount of Currency Units?
1,458,300,000 GDP Units / 1,000,000,000 Currency Units = 1.458 GDP/Currency
That is Monetary Deflation.
One Currency Unit now buys almost 1.5 GDP Units.
Think of it this way: $2 USD buys 1 gallon of gasoline, but now due to Monetary Deflation, $2 USD buys 3 gallons of gasoline.
We have arrived at one of the most difficult concepts for people to understand.
The gasoline is not worth less, rather the currency is worth more. That makes it appear that the price of gasoline has decreased, when in fact it is the currency that has increased in value, yet the increase in value of the currency is reflected through lower prices.
What if we increased the amount of Currency Units?
1,458,300,000 GDP Units / 2,000,000,000 Currency Units = 0.73 GDP/Currency
That is Monetary Inflation. The Currency is worth less, making it appear that products and services cost more, when in reality they do not, yet the lower value of the currency is reflected through increased prices.
It simply requires more currency to acquire the products and services. The M2 is currently $13.9 TRILLION. The US no longer publishes M3. That stopped a long time ago. More than 10 years ago. It was during the Bush Administration that they stopped publishing it, but I can't remember exactly when.
Note that this affects the price of everything, as in every single thing, meaning every single product or service sold in the US, and it also includes wages/salaries.
If you ever lived in a country that has rampant Monetary Inflation you can see that. The Inflation rate in Romania since 1991 has been 45% per year.
The price of
every single thing goes up an average of 45% per year. Granted, the last several years have been tame with Inflation rates in single digits, but it was hell for a while there. I think the worst year approached 300% and quite a few years were 100% to 200% and it was especially bad in the 1990s and then again in the early part of this Century.
You name it, the price went up: look around the room you're in...light switches, doors, hinges, door knobs, curtains, curtain rods, windows, carpeting, tile, all furniture, ball point pens, pencils, paper, all electronics, your cell phone, all kitchen utensils and plate-ware, cups, appliances, food, water, electricity, gasoline, all services, all clothing and shoes, alcoholic beverages, non-alcoholic beverages....everything.
Wages/salaries rise, too, unless you happen to be in a union with a contract that dictates wage increases (some contracts have clauses that permit renegotiation in the event of sustained hard-core Inflation), but the problem is there's always a lag-time of 6 to 12 months, and you never get that very last raise, so you lose your shirt.
Note that this has absolutely nothing to do with the value of the US Dollar as it is traded on the World Market or as it compares to other currencies.
When the value of the US Dollar decreases against foreign currencies, it may cost more to import those items, and that is usually reflected in a price increase for those specific items, but that is not Inflation
per se.
When the Supply of a specific item decreases while Demand remains constant, or Demand increases while Supply remains constant, it creates Demand-pull Inflation. This is often the case with crude oil, where Supply is flat and Demand rises and falls over time for many different reasons.
High housing prices and rents are the result of Demand-pull Inflation. In certain cities, the Demand for housing far exceeds the available Supply. That's a localize phenomenon. Where I live, you can pay $30,000 to $3 Million for a home. One neighborhood, namely Indian Hill where rock-star Peter Frampton lives, the homes are in the $Millions. Two or three swanky neighborhoods offer homes from $350,000 to $500,000, but for the vast majority of neighborhoods, home run $75,000 to $190,000. If you're willing to do a little work you can get them for $30,000 to $75,000, and if you're willing to commute about 30-40 miles to work, you can buy a 3 bedroom ranch on 4 acres of land for $59,000 like my nephew just did two months ago.
Again, Demand-pull Inflation only affects select products or services, just like Cost-push Inflation, which is an increase in prices due to regulatory actions by governments at various levels. You might use the same amount of water or electricity as someone else, but pay more (or less) simply due to government regulations and not due to Supply & Demand.
Wage Inflation occurs when rising wages result in rising prices for goods and services. Wage Inflation was widespread and rampant twice in recent history, once in the early 1940s and again in the early 1970s. In both cases, FDR and Nixon established a Wage & Price Freeze to halt the damage.
Why didn't they simply freeze prices and allow wages to continue to rise?
I don't know.
Understand that in both cases, not every worker was getting a pay raise. In both cases, only certain classes or groups of workers were getting pay raises, and they numbered in the Millions, but at the same time, agricultural workers were not getting pay raises, and neither were office workers, retail and food service workers, sales people, managers or others, including a lot of licensed professionals local government employees who also numbered in the Millions and were getting pinched by the higher prices.
You should know that FDR's Wage & Price Freeze is the reason employers lord over your healthcare plans.
Since employers were barred from giving pay increases, employers opted to pay for healthcare benefits as a way of attracting and maintaining good people in their work-force.
Health insurance was almost exclusively offered solely by hospitals, or in large cities, groups of hospitals. You went to a hospital, signed up for a plan, then took the information to your employer who would pay all or part of the cost as your benefit.
Those hospitals were aligned with two larger groups, either the American Hospital Association (AHA) or the American Medical Association (AMA). The AMA plans allowed you to obtain care anywhere, but the AHA plans would only allow you to use their member-hospitals. That's how the "Out-of-Network" idea arose, and when the AHA created the Blue Cross in 1946, the "Out-of-Network" clause was a hallmark of their plans. The AMA created the Blue Shield in response. After the Supreme Court's 1949
In Re: Inland Steel decision, insurance companies jumped into healthcare.
The AHA's Blue Cross eventually took over the Blue Shield, but the damage was done, and you're stuck with the "Out-of-Network" nonsense and your employer controls your healthcare, all thanks to FDR.
While we haven't seen wide-scale Wage Inflation, it still occurs locally and regionally.
The main argument for raising the minimum wage, is that workers cannot afford housing, yet increasing the minimum wage ultimately results in rising rent prices, so the workers are no better off than they were before.
The solution to high rents is to meet the Demand, and assuming a city is fiscally sound, it can issue 20 year or 30 year bonds to pay for the construction of multi-family units to increase the Supply of housing and stabilize the price of rents. The city can hire a private company to manage the units, and use the rent paid to pay off the bonds. Everyone wins, but cities are too stupid to do that.
Anyway, no, one person sitting on some money is not going to cause any type of Inflation.
Quote:
Originally Posted by hitpausebutton2
As a consumer inflation is the evil, but as a business its a good thing?
somebody made comment..
The bold is what i cant grasp. Just rise the debt of the person?
Inflation also makes it easier on debtors, who repay their loans with money that is less valuable than the money they borrowed.
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That's a bizarre statement you found.
The whole purpose of contracts is to obtain guarantees.
Whoever made that statement is apparently unfamiliar with the term "amortization."
My parents bought our home in 1965. Their monthly mortgage payment was $79.
I rented my first apartment in 1980 for $150/month. Obviously one can see the value of owning a home, as it fixes certain expenses, like housing, because my parents were still paying $79/month in 1980.
When banks set interest rates, they account for future Inflation, and when my parents paid their $79/month, that $79 wasn't going toward the principal. Only $17 was paid on the principal and the other $66 went straight to the bank, so it's not like the lender is being screwed.
The write also ignores the reality that while wages rise when there is Monetary Inflation, it's only long after prices have risen and totally gouged the debtor that wages rise, and the debtor never gets that very last pay raise, so the debtor ends up on the losing end of the stick.
When the debtor sells the home to buy another home, the debt doesn't necessarily benefit there, either, since the debtor may not be able to sell his home for a profit that will allow him to effectively pay cash for another home.
In the case of revolving credit, people should read their card-holder agreements, since many contain clauses that allow for an escalation of interest rates in the invent of Monetary Inflation, so the debtor doesn't necessarily benefit.