Thread: Inflation

We are all aware of an ever increasing inflation rate, but without the government stepping in (which they should of by now), inflation will spiral out of control and then what will we do when it suddenly crashes down? Any solutions to this problem?

Originally Posted by svwillmer

We are all aware of an ever increasing inflation rate, but without the government stepping in (which they should of by now), inflation will spiral out of control and then what will we do when it suddenly crashes down? Any solutions to this problem?

deflation would be a serious problem. this where products and services are setting around w/o buyers. this is why the Fed, increases/decreases its overnight loan rates, hoping to influance Bank/investor rates to prevent either de or inflation.

inflation happens when the supply becomes less than the demand. it may not be the final product, but in the cost to build, transport and maintain that product out or the same on items received to build a product or give a service.

inflationary pressure, a term used in economics which influences investments, are what the Federal Reserve Board and the Banking Industry perceives future market reaction. these rates increase the overall cost of products, even if your in the cash market class.

government in the case of the US, the Federal Reserve, can print more money or coin more coins, adding to the available amounts, but rarely will this influence inflation. if to much is thought available, interest rates dropping and so on, notes or loans will be paid, rather than continued.

money of any country, is in the end the value which other countries place in that countries currency. for the US to go into a spiral, several countries, even individuals would have to pull there investments or sell their investments in our assets. the usual reaction, then in the US, is more will be invested (higher rates) till whatever the cause was, is overtaken by the reaction.

there is really no solution to any currency problem other than letting the markets work out the problem whatever this problem is thought to be.

Originally Posted by svwillmer

We are all aware of an ever increasing inflation rate, but without the government stepping in (which they should have by now), inflation will spiral out of control and then what will we do when it suddenly crashes down? Any solutions to this problem?

Inflation is best constrained by controlling the money supply and interest rates. It is not the role of the government in the UK (I note you are from Derby) to do this. The interest rate is set independently by the Bank of England. Chancellor Brown established this process early in Labour's first current term in office.

Ophiolite's answer is correct. And we have a similar situation in the U.S. The interest rate is set by the "Fed" (Federal Reserve System) which is an independent agency not directly controlled by the government.

Originally Posted by Old Geezer

Ophiolite's answer is correct. And we have a similar situation in the U.S. The interest rate is set by the "Fed" (Federal Reserve System) which is an independent agency not directly controlled by the government.

The Federal Reserve Board sets the rates for overnight of short terms rates....only. The markets place, the traders in futures establish the longer term rates. the conundrum, which Greenspan recently mention was the apparent reverse curve which has existed for some time. The Fed current rates are 5.25%, but the futures on 5 year notes are 4.96 and the ten year is at 5.08 (rates 3PM EDT 6/25/07). I do agree a benchmark rate is the best way to control inflation, but that idea does not always work.

The Federal Reserve, for all practical purposes is part of the Federal Government, although its suppose to be independent. The Chairman is nominated by the President and requires Congressional Approval. additionally this person is required to report to Congress on a regular basis. I don't know the British system...

More importantly, the Federal Reserve in the U.S. sets the reserve requirment for banks. That is the main thing that contols the money supply.

Well, that and congress making money magically appear out of nowhere by writing checks that the Fed always covers.

I never thought I would cite Friedman :? because although I agree with many of his basic theoretical premises I strongly disagree with many of his conclusions about the magical unregulated free market(what works over the rainbow in fairytale land does not always work in real life), but I have to agree with him about the money supply and inflation however, if you stop issuing money then inflation will go down eventually.

But the thing that nags me about several economic indicators like inflation and unemployement is that there trown around in a way that makes people forget that they are averages and this can paint a misleading picture of reality (not to mention used to justify sleezy policies, the same way priests said give everything to the king youll be rewarded in heaven ). That inflation is at 1%(on average) is no consolation if house prices have doubled and you cant afford one, or as I often say an unemployement rate of 0.1% is also meaningless if a huge number of the employed are working on 2 McJobs and cant afford anything but a life of poverty, on the other hand if you have 11% unemployment but those without a job have excellent unemployment benefits are able to feed and house their family and when they do find a job they can expect a well paid quality job with excellent conditions then the 0.1% vs 11% stat thrown in the wind isnt worth its weight in horse sh*t. :wink:

While I agree with you in general, it is also worth pointing out that trends in indicators are often much more important than the absolute values.