FRIHOSTFORUMSSEARCHFAQTOSBLOGSCOMPETITIONS
You are invited to Log in or Register a free Frihost Account!


What causes inflation?





Wynand
What causes inflation?

According to the major economists inflation is caused by demand and supply. This principal is simple: When the demand for a product increases, the economy can’t supply the increasing demand and thus increase the price. This price increase is inflation.

Now I have a question. Why do the prices keep inflating? What are you theories? Also what other factors do you think constitute to inflation?

One theory is that the workers unions demand salary increases because of inflation. To support the increase in salaries the prices of products must be increased causing more inflation-- a vicious cycle.
maclui
Inflation may be caused by government´s economic policies, In México we have had anual inflation rates of 3709.90% http://www.mexicomaxico.org/Voto/60A.htm
raghu.steppenwolf
according to classical economists such as Keynes, inflation is caused by an overabundance of mooney, coupled with a demand-supply imbalance. These days, with neo-modern economics in vogue, thats probably an oversimplification although not untrue...my best guess is governmental policies, cartels, and the dollar value of the currency in terms of exchange value all have a part in determining how much a bang you get for your buck. Having said all that, I remember this quote from somewhere : inflation is just a lot of hot air. Laughing
japasco
the last post is very accurate to the definition of inflation, we got a very bad experience in Peru in the 80's decade. We try to leaving the hole today.
CanadianGeek
Well, I can see why a person would say that supply and demand increases inflation. Due to the increasing demands placed on resources by western societies, prices are rising, particularly if supplies of those resources are starting to dwindle. If you don't beleive me, then try gassing up your car.
Anticollie
CanadianGeek wrote:
If you don't beleive me, then try gassing up your car.


Well, to be honest, I think all that would proove is that OPEC are a bunch of money-hungry bastards, actually.

Driving his Vespa now fluently,
Anticollie.
bluefossil
Another reason is when government start printing money they can't back it up. Money used to be tied to the amount of gold available.
CanadianGeek
Anticollie wrote:


Well, to be honest, I think all that would proove is that OPEC are a bunch of money-hungry bastards, actually.


Even if OPEC were the most selfless providers of oil in the world, there's a disproportionately increasing demand for oil arising from the United States and China. Us with our SUVs, China with it's industry. The demand alone in China increases 15 percent each year. So it's not just price goughing. There's also the fact that Russia and Canada have the two biggest oil reserves in the world and are not OPEC members.
caroline
I'm guessing that the more precious metals are mined, the less they are worth, so the less everyone's money is worth... Sad
Aiz
CanadianGeek wrote:
If you don't beleive me, then try gassing up your car.


Actually, My Macro Econ professor said that stats show that, during the gas price rage, the national inflation rate was only about the all time average, 3.5% (?) which was pretty good. *shrugs* I wasn't interested enough to do research on it, but I guess it could be true.

From what he said, inflation is more so caused by too much economic activity. And what does the dear old government do to control it? Raise interest charges -_- (And probably adding up a few more taxes along the way, which btw, doesn't help the economy either). Thus, the recent recline of the realestate business.

I only have partial confidence in what I just said since it was all second-hand information. From a Professor, but hey they are often wrong too. But I think he sorta has a point there.
risuarez
Firstable Keynes is NOT a classical economist. Secondlly as you have just pointed out there are two main theories of inflation.

1-Demand-pull inflation, and
2-Cost-pull inflation

The first would be the one explained by Wynand in the first post and the second would be the one in which OPEC has much to do with. When the operatinal cost of the companies increase then they have no other choisse than to increase prices. And when the increase in cost is due to a very comon use good such as oil than the rise in prices occurs in the whole economy. So we see how inflation appears.

another variant is the one who states that inflation is a monetary phenomenon just as explained raghu.steppenwolf but it was not keynes who said this but Milton freidman and the followers of the monetarist school.
Meggsy
Just ask the Prime Minister of Australia... he believes rising petrol costs and also the price of Bananas due to a cyclone in our Banana producing areas. I think its just a cycle where people demand more money from their boss because they want material things, the boss gives them more money and to cover that expense he needs to increase prices. As a result of the increased price people have to pay, they go to their boss and demand more money. Around we go again...
risuarez
a cycle!! mmm!!! very well though I haven't seen it that way
raghu.steppenwolf
in response to risuarez' post :

when viewed through the prism of five centuries, of course keynes cannot be termed a classical economist in the same way as say, adam smith. but when viewed through the prism of the last 100-150 years, my submission is keynesian theories are classics. this is because as keynes himself said, in the long run, everybody is dead. much of the medieval schools of economics are outright irrelevant today. titanic is a recent movie, but it is a classic, isn't it. today's cult is tomorrow's clasic, to put it another way. but yes, i stand corrected that economists themselves do not refer to keynes as a 'classical' economist. thank you for pointing that out.
risuarez
raghu.steppenwolf wrote:
in response to risuarez' post :

when viewed through the prism of five centuries, of course keynes cannot be termed a classical economist in the same way as say, adam smith. but when viewed through the prism of the last 100-150 years, my submission is keynesian theories are classics. this is because as keynes himself said, in the long run, everybody is dead. much of the medieval schools of economics are outright irrelevant today. titanic is a recent movie, but it is a classic, isn't it. today's cult is tomorrow's clasic, to put it another way. but yes, i stand corrected that economists themselves do not refer to keynes as a 'classical' economist. thank you for pointing that out.


You're right, jajaja todays modernities are going to be tomorrows antiqueties! jajaj In think that is the law of life!
bluefish
The most common cause of inflation is too much money chasing too few goods. If everybody had 5 times as much money but the amount of goods and services produced remained the same, prices would naturally rise by a factor of 5. So the answer to avoiding inflation is simply to avoid printing too much money. Easier said than done.
Government leaders like to spend a lot of money on military equipment, roads, subsidies, building projects, etc., because this keeps them popular with their constituents. But getting money to pay for these things is often difficult. Raising taxes is as unpopular as government spending is popular. One alternative is to borrow the money, but sooner or later you have to pay it back. Probably the easiest way to pay for those popular government spending programs is to "print" some more money.
simp
What Bluefish said was well said. Concise and "right on the money" (no pun intended).

P.S. - When governments print funny money, it's called "monetizing the debt", and they get "credit" for doing so (again, no pun intended). When you print funny money, it is called counterfeiting, and you go to prison. Now why is that? Inquiring minds want to know . . .
risuarez
simp wrote:
What Bluefish said was well said. Concise and "right on the money" (no pun intended).

P.S. - When governments print funny money, it's called "monetizing the debt", and they get "credit" for doing so (again, no pun intended). When you print funny money, it is called counterfeiting, and you go to prison. Now why is that? Inquiring minds want to know . . .


Yes but inflation is not only a monetary phenomenon. It could be also a cost-incresing reaction. We do not have to forget that. I would also like to print my own mone jejeje! That will be great! But perhaps it will legal course only within the boundaries of my home jajajaja.

But thing about it! I will be able to state my own exchange rate and trade policy jejejeje.
insanesnoopy
Most comments to this question are pretty on the money so to speak.

But we also have to consider that we want to keep our currency on a certain level on the world stage so inflation is often used to accomplish this.
discountcontacts
two causes of inflation:


Cost push- rising costs of the factors of productions, i.e. resources- land labour capital enterprise- usually due to supply problems

Demand pull- general level of demand in the economy exceeds the ability of the economy to produce/supply.

Most major economies have a tendency towards inflation because realistically there are only 3 possibilities-
1.inflation
2. no change in the value of money/ price level
3. deflation

Number is least likely due to numerical common sense. 0 is a number, where as + and - are ranges and directions.

deflation is less likely to occur than inflation, because we live in a competitive world that are full of hedonists including myself. People tend to work hard and spend hard. Or work slack and spend hard, both of which is conducive towrds inflation. Keeping up with the Jonese ultimately creates inflation.

If everyone in an economy, worked flat out and spent bare minimum, then there would be definite deflation.
odinstag
It is an easy answer.

In the USA and most fo the world the money is loaned for interest to the nation. That's right, loaned.

When it gets to the banks they loan out about 10 times more on papaer credit than they have in cash reserves. So they are getting interest on money that they don't even have.

When they do this it puts a strain on the money and devalues it. Soon the interest becomes more than the supply of money on hand and they have to print more money to keep the con going. So people can still pay their intrest payments. Therefore devaluing the money already in print even more.

It also happens when other countries have huge cash reserves in another countries currency. Effectively taking money out of circulation. Less buying power means less value for the money in circulation.

The bankers manipulate money at will. That is the major problem.
markrc99
Yes, generally speaking, inflation is the value of an asset or service and to what extent you can purchase that good or service with the note or notes in your hand. Now as Bluefish mentioned, printing alot of money is bad. Here's a big a problem we have- the U.S. empire has the world trading oil in dollars. I've read before that oil, rather than gold, is what is backing the dollar. We often hear the term, petro dollar.

Here are three sure facts. The Federal Reserve is a privately controlled institution, in other words, old money elitists own our currency. The world trades oil in dollars, which creates a huge demand for our currency. When that demand ends and those notes are called in, we're in deep! The U.S. economy would be among the hardest hit with a widely committed switch to alternative energies.

Other factors are peak oil and our govt facilitated trade imbalance doesn't help matters. With respect to 2nd and 3rd tier issues, nations do have some autonomy, but on real issues of power and control, the nation-state model no longer exists. There are no borders. The Middle east for example, was conquered and controlled by western powers after WWI. There is no self-determination for any part of that region. These wars, this war now in Iraq, is a manufactured conflict. No, I assure you, the truth is indeed OUTRAGEOUS and our govt w/o a doubt completely corrupt!

The new world order is here and your govt hates your guts! Ideally, you want raw materials coming in and finished products going out. The U.S. govt rewards just the opposite. We have massive capital flight, offshore tax havens for the ruling elites and trade pacts and immigration enforcement that is aimed directly at the working class. Are you 18 yrs old? The future does not welcome you...not at all...Good luck
Rico
Within the sphere of middle-of-the-road money matters, inflation is an increase in the widespread pricing structures in perspective to the calculation in position to a particular baseline of purchasing power. The current outlook in conventional finances is that inflation is caused by the interface of the provision of cash with production and interest rates. Conventional economists are split into two groups: the notion that fiscal effects govern all others in setting the velocity of price increases and that of the interaction of money, interest and productivity which dictate leadership or primary influence over the other monetary effects.
Soulfire
I think that union workers help inflation at times. As their demands for higher wages are met, consumers suddenly have more money to spend. Producers notice this, and increase their price. In theory, the economy would balance out to pre-inflation levels, but many companies don't know when to stop raising prices as the minimum wage (although increased) is constant.

Just my little thought...
TomGrey
In theory, it's simple.

Prices of all goods are related to all other goods thru supply & demand curves, establishing some current price level.

Imagine the gov't now says every penny is really a dollar, so every $2.50 whopper becomes a $250 whopper; but every $6/hr job becomes a $600/hr job.

"What you can afford doesn't change". This is a sample of instant inflation.

Real inflation happens more slowly, as the gov't 'prints' more money (expands the money supply thru lower interest rates -- more advanced issues). One effect of the greater money supply is a greater amount of production. If both increases are the same, there is no general increase in the prices.

But usually the production increase is less than the money supply increase, so that prices go up. However, the prices that go up first are those that the gov't spends its money on. This is why conterfeiting is illegal: the counterfeiter will buy whoppers with fake money, and get real product for "free", making every body else pay a little bit more for their stuff. If the fake money, like Monopoly money, were actually accepted by the banks and everybody else, then everybody could feel rich for a day or two until the prices all adjusted much higher. Those buying with fake money first would be the "winners", those with the most "money" at the end of the price adjustments will find they have far fewer things, and now all things are more expensive.


The real world response to real world inflationary monetary policy is what is important, and is where the unions, the gov't, the demand and supply responses, and all the rest can be argued about.

Since the Carter (Dem) stagflation, Friedman's monetary explanation of inflation has been pretty dominant, and allowed independent central banks to set price-stability anti-inflation as a clear goal of the Fed. So the US has had much less inflation, and most other developed countries have had more stable money, too.

Though Zimbabwe shows how hyperinflation is still possible.
rshanthakumar
The personal facets of inflation are ignored in many research exercises.

Typical ones are:
1. Inflation increases with human education. The reasoning goes like this: Education breeds ambitions. Ambitions brings in more money and more money in your pockets breed inflation.

2. Inflation increases with industrialization. There is more money in the kitties of the people to spend.

3. Inflation is a measure of craziness in people and the fast buck they are trying to make. Look at the price rise in real estate till 2005. or look back at the dot com craze. Inflation happens when people go after money, more and more.
The_Gamer294
Coclus
It's pretty much existing because of scarcity (Unlimited wants and needs and limited resources).
rshanthakumar
Containing inflation is in our hands. Like what we are trying to do with the usage of animal products, skins and horns etc., we should say no to unwanted items / products. This will bring down the overall requirement and hence the inflation. Most often it is the higher cost that we are willing to get something, particularly the illegal ones that increase the inflationary tendencies.
sarapicoazul
raghu.steppenwolf wrote:
according to classical economists such as Keynes, inflation is caused by an overabundance of mooney, coupled with a demand-supply imbalance. These days, with neo-modern economics in vogue, thats probably an oversimplification although not untrue...my best guess is governmental policies, cartels, and the dollar value of the currency in terms of exchange value all have a part in determining how much a bang you get for your buck. Having said all that, I remember this quote from somewhere : inflation is just a lot of hot air. Laughing


What do you mean by overabundance of money ?
indeedwrestling
rshanthakumar wrote:
Containing inflation is in our hands. Like what we are trying to do with the usage of animal products, skins and horns etc., we should say no to unwanted items / products. This will bring down the overall requirement and hence the inflation. Most often it is the higher cost that we are willing to get something, particularly the illegal ones that increase the inflationary tendencies.


Instead of trying to control inflation, I think most countries should spend more time trying to control their bloat and taxation policies. Inflation is merely a secondary effect of unemployment through the Phillip's Curve.
TomGrey
I just read the Wiki note on the Philips curve, which totally ignores Friedman's monetary theory about controlling inflation thru controlling the money supply (in practice, Central Banks adjusting interest rates).

It occurs to me there are two gov't controllable inflation-employment influences: monetary and fiscal; plus the exogenous globalized system labor & commodity markets, especially oil/gas-energy.

Friedman's monetarism has mostly "won" the stable inflation target reduced money supply fluctuations, and most central banks push for stable price levels (=stable money growth). In this stable money environment, perhaps national fiscal policies recreate a fiscal-inflation / unemployment relationship (welcome back, Mr. Phillips).

(see http://en.wikipedia.org/wiki/Phillips_curve )
100BillionDollars
TomGrey wrote:
In theory, it's simple.

Prices of all goods are related to all other goods thru supply & demand curves, establishing some current price level.

Imagine the gov't now says every penny is really a dollar, so every $2.50 whopper becomes a $250 whopper; but every $6/hr job becomes a $600/hr job.

"What you can afford doesn't change". This is a sample of instant inflation.


I agree But I think this is more about Honor and Integratey at this point. We as Americans love to say that America Is the then all some one other country has to do is hold up 1 dollar in their currency and ask us to do the same and say take it to the bank. The gemany currency is twice the value of our but just ten years ago our was twice the value.
100BillionDollars
I think the true problem is the US I would contribute it to the lack of education which would scare Americans into doing something about it.

Tell me what you think about my theory

here it is lets say all currency is the same and I mister LONDON decide to come to america and start a business and make millions of dollars and send all my money to my home land that directly increase the amount of currency in what ever country.

So now we ad a new factor computer which almost all middle to upperclass owns them with internet access.
Think now some one does not have to come to America at all all they have to do is set up a site and you visit them. and give you money.

But that I do not think is our true down fall it is debt this is the core problem what do we actually own mostly every thing has a loan out and do you actually know who fund those loans?

US $8.837 trillion dollars or $8,837,000,000,000.00 in debt to other countries.

Does America actual own the land we live on? the home? the cars? Does america even care?
I think they do we have to educate them.
rshanthakumar
I think inflation is closely related to the economic growth of the country. The old stable growth theory says that after due passage of time the country would settle for a stable growth. When ever there is an exemplary growth then there is a possibility that the growth rate might start oscillating about the stable growth rate and then settle down for it.

When the countries that do not grow much start picking up (read Japan) they grow pretty fast and then oscillate about a stable growth until they stabilise on it. The same is happening now in china. It is going up and when two or more large economies grow fast, then the other economies will feel the pinch. It is the law of economy trasferred from the laws of fluids. Unless the dollar hits a low, the other economies will not stop growing. When it does so, the other economies will have to necessarily slow down and start oscillating about a stable growth rate before settling down. The oscillations can be large, small or very small as in the case of small countries like Singapore where it stabilised pretty fast.
100BillionDollars
rshanthakumar wrote:
I think inflation is closely related to the economic growth of the country. The old stable growth theory says that after due passage of time the country would settle for a stable growth. When ever there is an exemplary growth then there is a possibility that the growth rate might start oscillating about the stable growth rate and then settle down for it.

When the countries that do not grow much start picking up (read Japan) they grow pretty fast and then oscillate about a stable growth until they stabilise on it. The same is happening now in china. It is going up and when two or more large economies grow fast, then the other economies will feel the pinch. It is the law of economy trasferred from the laws of fluids. Unless the dollar hits a low, the other economies will not stop growing. When it does so, the other economies will have to necessarily slow down and start oscillating about a stable growth rate before settling down. The oscillations can be large, small or very small as in the case of small countries like Singapore where it stabilised pretty fast.




Wrong Wrong Wrong
Shure what you say he may be correct but the economy of a nation is directly perpotionate to its education. and to top it of japans core business belief was from an american.

The fact on the matter is that we a being suckes dry because of our lazines and trying to save $ By outsourcing.

If you send a dollar to china it is still a dollar but it is in china so now we have given all of our dollars to other countries and now our banks do not have enough for people to cash their checks on friday so they can put thier money back into out internal market.

So we try to make a deal saying if you give us some of our money back we will give this or sell you this at a lower price so we will lose our asset value. but they say no we want to keep it and that is final.

So we say fine we will just print more and that will drive the value of what you have down but it does it for everyone so our government is not going to fix this they do not know how they have shown that in the past the only war they know to fix it is through war. s

It is our responsibility as individuals to protect our $ and keep it where it belongs.
ratfungus
Hi All. Here's my theory. Keynes et al all had theories. None, I suspect, proveable. I believe that those who have enough wealth to live very comfortably want even more wealth. They then vote at AGMs to increase the prices of what they supply (you can argue that the market will prevent this - bullshit). There are so many concert parties and cartels that they artificially put prices up across the board. This doesn't happen on everything, of course, but it does on enough goods and services, in my opinion, to be a major contributory factor in inflation. Now those on the bottom rung of the ladder are taxed regressively. These are also the majority of the population. So when the vast majority are paying more and more with less and less disposable income - eventually they say enough is enough and rebel. They then take action to increase their wages. Those who own the stocks and shares see the companies that they have invested in having to pay higher wages to the masses and they want the prices of their goods and services increased so they can make more money off the backs of the working masses. Many of these types consider themselves wealth creators. All they are is greedy bastards. In my opinion - that's what causes inflation. Before I get a barrage of abuse, I'm not some communist 'reds under the bed' looking for a socialist paradise. It doesn't (and never will) exist. And for the very same reasons I've just stated here - the greedy bastards. Some more equal than others and all that. I have no problem with people investing in stocks and shares and making some money. Venture capitalist often make a LOT of money. That's the problem though. Those with a LOT of money - just get greedier and greedier. Those of us in the West aren't having to sell our children in order to afford to live (and this does happen - again, in my opinion, often because of the policies of large corporations and the greed of their shareholders) but it is very difficult to get off that bottom rung of the ladder. I've been there all my life and its stinks. In the words of Alice Copper - all I'm really looking for is an even break. And before anyone decries what I have proposed and says it's just my opinion. Well yes. Of course it is. Who else's opinion could it be. Is there anyone out there who agrees, at least to some extent, with my opinion? Mad
budiman
1. That which increases demand without immediate relationship to supply, and that which reduces supply without immediate relationship to demand, is "inflationary."

2. Also, that which prevents or inhibits the growth of supply to meet increased demand, and that which prevents or inhibits the reduction of demand to conform to a supply reduction, is "inflationary." Such government policies as expansion of the money supply, restraints on international or domestic commerce, and controls on prices, profits, rents or interest, all fit this definition.
ratfungus
In reply to Budiman, yes this stuff all sounds good IN THEORY and there are things, like veblen goods, that defy what you've just stated. But that's all it is - theory. Using super computers, huge amounts of time and masses (in the billions) of items of data, governments can predict, economically (and inflation obviously has a lot to do with the economy) what happened last year. An oximoron - yes. What I mean is that they can predict with no accuracy whatsoever. There are just too many variables and too many factors that just don't behave as predicted. Well that's my theory anyway. Rolling Eyes
jmwarshay
We get inflation when the money supply expands relative to production and population. Hyperinflation exists when the expansion of the money supply is very rapid. This happened in Germany between the World Wars and more recently in Argentina. In those countries, more money existed, but output did not rise (and may have fallen), so prices rose. This also happened in Spain in the 16th century when much gold was brought home from the New World but production in Spain did not increase. This is one of the earliest known instances of inflation.

We also see inflation when input costs increase. Most recently, this happened with oil. The increase in energy prices affects firms everywhere, and costs are usually passed on to the end consumer. Oil is used in making plastics and other items, so inputs for those firms increase in more than one area (energy and raw materials).
charlieg
Population growth, I would also assume, is a factor. With each progressive year the population of a given country (unless the county really sucks) generally goes up every year...more people means more producers and/or consumers of goods and services. The GDP goes up, the whole economy gets bigger...you need more money to go round.

Does anybody know how inflation rates affect exchange rates?

see also: the Bank of England's recent hike of interest rates to curb inflation.
rshanthakumar
ratfungus wrote:
In reply to Budiman, yes this stuff all sounds good IN THEORY and there are things, like veblen goods, that defy what you've just stated. But that's all it is - theory. Using super computers, huge amounts of time and masses (in the billions) of items of data, governments can predict, economically (and inflation obviously has a lot to do with the economy) what happened last year. An oximoron - yes. What I mean is that they can predict with no accuracy whatsoever. There are just too many variables and too many factors that just don't behave as predicted. Well that's my theory anyway. Rolling Eyes

I agree with your statement. Theories are theories. They are not proven. Theorising primarily happens when we are not able to prove conclusively. We suppose it follows these norms.

Moreover, as you have said there are too many factors that work on the economic status of a country and hence the value of its currency. It is always a fact that any imbalance in trade will slowly if both the parties are sincere will easen out and reach an equilibrium that supports both. This is what is happening in the case of businesses going out of US to China or to other countries.

Coming back to inflation, when people have more money to throw about the inflationary tendencies settle in. When more people invested in real estate we had the biggest real estate boom ever...
mawia
Inflation arises when the aggregate demand exceeds
the aggregate supply of goods and services in the economy.
Both Keynesians and monetarists believe that inflation is caused
by increase in the aggregate demand. Aggregate demand(or our capacity to buy) would increase if there is:
(a)increase in Money Supply, (b)increase in Disposable Income(e.g. due to reduction in taxes),
(c)increase in Public Expenditure(from budget allocation)
(d)cheap Monetary Policy(credit expansion policy),(e)deficit financing, etc. Apart from the above factors,
expansion of the private sector, existence of black money
and the repayment of public debt by the government would also increase
the aggregate demand.

On the supply side various factors would also be responsible
for the reduction in the supply of goods and services.

International Factors: In modern times, inflation is a worldwide phenomenon. When prices rise in major industrial countries,
their effects spread to almost all countries
with which they have trade relations.
Often the rise in price of a basic raw material like petrol
in the international market leads to rise in the
price of all related commodities in a country.
LumberJack
odinstag wrote:
It is an easy answer.

In the USA and most fo the world the money is loaned for interest to the nation. That's right, loaned.

When it gets to the banks they loan out about 10 times more on papaer credit than they have in cash reserves. So they are getting interest on money that they don't even have.

When they do this it puts a strain on the money and devalues it. Soon the interest becomes more than the supply of money on hand and they have to print more money to keep the con going. So people can still pay their intrest payments. Therefore devaluing the money already in print even more.

It also happens when other countries have huge cash reserves in another countries currency. Effectively taking money out of circulation. Less buying power means less value for the money in circulation.

The bankers manipulate money at will. That is the major problem.


I agree with you. I actually find it amazing that banks are technically allowed to sell a good that they "do not have". No other business in the world is allowed to do that.

Demand and Supply side inflation I don't think causes major longterm inflation like the money supply.

Sure, temporary price spikes can cause increases in inflation, but the economy usually adjusts that over time. The money supply is completely determines by the Fed.
ratfungus
In reply to 100BillionDollars

The reason your US$s (and £s and €s) are going to China (and to a lesser but growing extent - India) is simple. Corporations (who are run by the shareholders or stockholders - often institutional shareholders) want the maximum profit possible (as I alluded to in my other post) - no matter what the cost, in terms of the economy of their home country (their home country soon becomes wherever they can get the biggest bucks). Go to a low wage economy and that's exactly what you get - max profits. The Chinese may not have the same numbers as the west attending University and College, but even a small percentage of 1 billion people attending College or University is, well ... a lot of graduates. The same applies to India - and with the sizes of their populations (India will likely have a larger population than China in the next 25 years or so) they can be VERY choosy about who gets in to higher education. So not only do they have the numbers of educated people required, they are, in large part, the cream of the crop. English is not barrier as many many Chinese and Indians now speak very good English (maybe with an accent that you're not used to, but still very good English). For China, couple that with a country whose economy is BOOMING and a government who does everything it needs to (and it doesn't need to do much - greedy western companies and practically fighting each other to get in there) in order to attract western companies to its free trade zones and you have a recipe for an impoverished west in the not too distant future. What a happy thought.
jmwarshay
Demand pull inflation is relevant when the economy is at capacity. That means we have full employment. That is not the case in the US, though the unemployment rate seems to be low. The manufacturing sector is in recession. The idea is that if wages increase but we cannot produce more goods, then prices will increase.

A sudden expansion of the money supply can cause inflation. This happened in Spain when the conquistadors brought back gold. Spain itself did not produce more goods, but because gold was money, there was more money chasing the same number of goods, so prices increased.

Cost push inflation occurs when input prices increase. The rising cost of oil is an perfect example. It increases transportation costs, and we use oil in the trucks and planes that deliver goods, so the cost to bring those goods increases. We also use oil to make plastics, so the cost of anything with plastic will increase.
rshanthakumar
Another major reason for inflation apart from the large GDP growth is the greediness of corporates. Corporate greediness and in their intention to show high profits, they push their prices without any consideration for the rest of the market. This has a chain effect. When you increase the price of Petrol a barrel, there is a pinch everywhere. So is the case with many of the products however small they might be.

For instance, fertilisers do affect the crop production and in turn the cost of food products in the market. The chain continues. Corporate greed, particularly, in this age of large corporates is one of the major reasons for inflation.
Mr_CEO
generally speaking, I think inflation is the value of an asset or service and to what extent you can purchase that good or service with the note or notes in your hand. Now as Bluefish mentioned, printing alot of money is bad. Here's a big a problem we have- the U.S. empire has the world trading oil in dollars. I've read before that oil, rather than gold, is what is backing the dollar. We often hear the term, petro dollar.

Here are three sure facts. The Federal Reserve is a privately controlled institution, in other words, old money elitists own our currency. The world trades oil in dollars, which creates a huge demand for our currency. When that demand ends and those notes are called in, we're in deep! The U.S. economy would be among the hardest hit with a widely committed switch to alternative energies.

Other factors are peak oil and our govt facilitated trade imbalance doesn't help matters. With respect to 2nd and 3rd tier issues, nations do have some autonomy, but on real issues of power and control, the nation-state model no longer exists. There are no borders. The Middle east for example, was conquered and controlled by western powers after WWI. There is no self-determination for any part of that region. These wars, this war now in Iraq, is a manufactured conflict. No, I assure you, the truth is indeed OUTRAGEOUS and our govt w/o a doubt completely corrupt!
GSIS
Inflation is a symptom of the destruction of Earth by our own greed

Only demand fuels inflation. Increasing demand (for more money and more goods) by an increasing population. Neither of these increases can be sustained indefinitely.

We need to change our mind sets very quickly.

Suppose we want to curb inflation. Here's part of what needs to, or might, be done. Before you read, though, this is all 'brain-storming'. The outcome would be a society so extreme and rigid in its structure and behaviour that it would be difficult to refer to it as 'humanity'. I hope it never has to be forced on us.

1) Curb the population growth. A too-large population is the fundamental problem for the health of the planet. Our current breeding pattern cannot be sustained indefinitely. New technology in food production will only delay inevitable food shortages but will not curb increasing demand for consumer goods at all. Higher demand means higher prices - either by way of shortages or by an increased investment in new production processes and faster machines to make those goods. 'Better' production processes mean higher unemployment rates which cause higher taxation (in a welfare state) which further fuels inflation.

This population problem has already damaged the planet - possibly beyond repair.

One future possible solution is to move the excess population off-world. For any significant gain this would have to be a one-way trip with people living their remaining lives off-world - with no permitted return. Obviously we do not have the technology to live off-world (yet) and it will be a long time before we do. Currently we can only make short and very unsustainable visits. With sustained population growth food prices (in particular), housing, transport, education, all local and national services, etc. will be in greater and greater demand fuelling inflation as suppliers struggle to meet it - and taxes are increased to fund the increased demand in public services.

We might even solve time travel before we solve the problem of off-world living. If so it might be possible to send our excess population forward to a time when off-world living problems have been solved. The paradoxes would be mind-blowing. What, for instance, would happen if we sent forward a direct ancestor of the key individual who is to solve the main problems of off-world living (or his teachers/mentors - or even those who inspired him, for that matter)?

2) Change our mind-sets wrt incomes. Every time we get a pay rise we cause inflation both by causing financial stress for our companies (who have to increase prices to sustain share-holders/owners incomes), and by devaluing what we have in our country's collective pocket. If we could set a fixed-in-stone salary for every job we would eliminate that cause of inflation. If an individual wants to earn more it will be necessary to change to a job that is more highly paid. This brings about the prospect of a 'hive' society in which young individuals do necessary but menial tasks for relatively little pay, and move through a series of jobs throughout their lives. Some individuals would have to be selected for highly responsible jobs as soon as their ability is recognised at an early age.

3) Change the mind-set of the gimme-gimme-gimme sharehiolders and company owners/directors. Currently, in most countries, there is a great imbalance between the wealthy and the poor. The mind set needs to be changed from a competitive one (trying to be better off than everyone else), to a more cooperative one (helping others achieve their potential or meet their aspirations). More satisfaction in ourselves comes from helping others than comes from helping ourselves.
jelen
debt trap in less developed country causes inflation.
akshar
the most significant reason could be the liquidity. If people have more money they buy more and expensive things. Demand rises and prices go up.

Thats called Demand Pull inflation. There are many other types refer Wikipedia for more info.
jelen
Admittedly, the economic mainstream believes that a low interest rate policy is helpful for stimulating

output and employment: lower borrowing costs are widely expected to translate into higher investment,

job creation and, ultimately, growth. However, such an outcome is far from clear. In fact, a cheap

monetary policy might not reach its goals but end up achieving quite the opposite of what it is intended

to do.

What is often overlooked is that a low-yield environment reduces the economic incentive to adjust

scarce resources to new circumstances. An artificially low interest rate can thus be expected to water

down the need to bring about product and process innovations, a crucial ingredient for sustained growth.

Low borrowing costs prevent the market exit of relatively inefficient suppliers, whereas it becomes

harder for higher performers to gain market share, cementing inefficient market structures. Finally,

there is a danger that a low interest rate policy encourages only low yield investment, which, should

interest rates rise, would become unprofitable, causing a further business cycle crisis.
akshar
yes very correct.
TomGrey
Ratfungus said awhile ago:
"Many of these types consider themselves wealth creators. All they are is greedy bastards. "

They're actually both -- wealth creators (Michael Dell, Bill Gates) and greedy bastards.

Well, greedy, anyway. But they got their money by peaceful, voluntary means, so they're not really bastards. The ignorant who hate the rich because they are rich are more likely to be bastards.


Inflation is when everything goes up in price -- that's only possible with more money; and is certain to happen whenever there IS an increase in money. Well, except it must be an increase in money greater than the increase in production.

It's only clear in scenarios, the simplest of which are still a bit complicated:
An economy producing 100 cars (avg $10,000 each) and 1,000,000 units of food (avg $1) per year, with $2 000 000 of money, total. Next year, after an increase in money to 2,200,000, but no increase in production, the "same" (new) 100 cars cost 11,000, and each food unit costs $1.10.
However, if the new money meant more cars were made, so there was 120 cars, then we could have a different situation:
the cars could continue at $10,000 and the food at $1 so no inflation.
One side of the economy is Quantity of goods, and the Price (P*Q).

The other side is the amount of money (M) * how fast it moves in the economy (V, Velocity).
Remember that car makers buy food, and cars, and food makers buy cars and food. How quickly? This is the sum of personal decisions, but is called Velocity.

Those who don't focus inflation talk on the PQ = MV equation are unlikely to understand economics or inflation. There is no single unique solution, except when artificially keeping the other variables constant.
whitehole
Inflation happens when the money supply(all of the money currently in circulation) raises but the productivity stays the same. It happens in pretty much all economies and really isn't a big deal most of the time. I think hyperinflation is interesting to read about and if you've never heard about it then google it sometime.
rshanthakumar
Why is there so much talk about inflation? I think the US is not going to have any major problem in the near future. Here is the reason why!!

I want to call this crazy economic theory! Give some other name if you can land up with one.

There is the concept of saving dollars to push the economy up. Most of the countries in the east save dollars and money or other forms of money to become wealthier. Let us say a person A earns $1000 and saves 200 every month.

Now this 200 he saves it and possibly reemploys it after ten months when he has over $2000 of accumulated money. After which he does a wise investment. Now if you look at the work done by the 200 dollars you will find it is just one.

Whereas in the US, saving is not the portfolio. You have the money you spend it. Let us say you spend the money as soon as you earn it. The guy who gets it from you also spends that money swiftly. In one month, the 200 dollars would have possibly moved over 20 times. The work done by this 200 is 200x20 = 4000 dollars. That is equal to producing 4000 dollars. Whereas in the first case it is only 200 dollars.

The more you spend, better it is for the economy. More people are earning more money. This means the country as a whole is producing more. And therefore, there is no way that country can go under a recession.

That is why I said, the US will never experience a recession and will continue to grow. It follows my crazy economic theory!!
TomGrey
rs, this "Americans spend" is well known in economic theory. It is called V, the "velocity" of money, and is part of the PQ = MV equation:

Prices * Quantity of stuff bought IS ALWAYS EQUAL to amount of money * "speed of use" / velocity. Actually, this equation defines V, since unlike the other quantities, "V" is not so objectively measurable.

"All Prices" P can rise in three ways:
Q quantity of stuff goes down. Drought causes less grain, price of bread goes up.
M quantity of Money goes up -- as above, everybody has 10% more money, prices are 10% higher.
V Velocity of money goes up -- folk spend cash 10% faster so the same money buys "10% more," but with Q quantity the same, the 10% more means the same q at 10% higher prices.

Of course, all 4 quantities are constantly changing and adjusting.

Plus the productivity increase over time means same amount of labor / capital input, but higher output (more Q). More Q tends to make prices lower (see the drop in HD TV prices).
Related topics
Fashionable Nonsense by Alan Sokal and Jean Bricmont
Sleep less to get more out of life?
WILL universe ever end?
Bird Flu
Zimbabwe Self Rule
Main causes of war in history
Dark Energy?
Its too much......Why India and China are blamed.
Expanding universe and gravity
Recession !!!!
Libertarians, deregulation, and the current economic crisis.
Should Obama and Dems Limit Charitable Giving?
Capitalism - Communism Scale
Let's give away money
Reply to topic    Frihost Forum Index -> Lifestyle and News -> Economics and Marketing

FRIHOST HOME | FAQ | TOS | ABOUT US | CONTACT US | SITE MAP
© 2005-2011 Frihost, forums powered by phpBB.