Its a sad thing to think about.
I know -- it is! And when I try to educate people on very basic principles, I often get that blank stare. People have too much going on to dig into things like HOW inflation really works and WHY? All they know is if it goes up, bad. Down, good. But WHY!?!?! Why do prices need to constantly increase? Why does no one ask that? You know?
Makes me angry that banks get away with it with protection from the very top and no one even knows. Except when the fucked up in 2008. Then we have Occupy Wall Street etc raising SOME awareness. But they are back at it again already. Selling shit mortages at prices people can afford short term, but will default on long term.
And I will never forgive Obummer for bailing them out. Bailed them out, but left homeowners high and dry. Not just Obummer but all of them are to blame.
Not to take away from your points, but the inflation thing is kind of a necessary evil that I'm still trying to work out.
The problem is that if you don't create ANY new currency, and your GDP increases, you get deflation. If people know that they can wait a few weeks to a year, and their money will be more valuable, they won't purchase anything while they save up. This is bad at an individual level, but it gets even worse as you go up, because corporations with lots of money will just hold onto it as it rises in value. With a little inflation, they would rather invest it into the economy to gain a return, rather than let it devalue into nothing due to inflation.
Again, I haven't had the time to thoroughly go through the argument, and see if it's actually true, but at face value, it seems to be.
This doens't mean we need the fed though. I'd rather that the government just print its own cash, in lieu of any and all taxes, fees, etc. but only to the extent that inflation is increased by 1-2% a year, and no more; no increase in GDP = zero money to fund the government. But again, I'm not sure how that works out.
Hey thanks for replying you make some interesting points!
Now we can consider other things like if an economy was actually based off of something, like a gold standard. You cannot just create more money out of thin air. You need physical assets to back it up. That's where we have gone awry. Our currency is based on nothing more than a promise to pay (which has been damn near as good as gold for a long time, granted).
But when they bail out banks and just created trillions out of thin air, what happens to all existing money whether real or virtual? That's key.
I think there are arguments for adjustments here and there, but in a true capitalist economy without interference the market will always correct itself. Once value hits a certain amount, everyone dumps until value goes down to a certain amount, then horde again using your analogy. There will be a regular and predictable cycle about it. And some things, you just can't wait for. People need fuel and food and medicine. So there will be constant spending regardless of the actual value.
I find this topic very interesting, but so few to actually discuss it with rationally.
Thanks again!
I have seen this argument that limited supply leads to a deflationary economy that grinds to a halt many times, but I haven't seen it in practice. When I would talk to people about bitcoin they would say that since it couldn't be inflated it would fail as a currency. The value of a currency is in its ability to retain value and easily be transferred for goods and services so I fail to see how a fixed quantity currency like gold or bitcoin is necessarily bad.
The idea that no one would spend money seems odd because people have needs that need to be met by the economy. They need to buy food, electricity, heating/cooling, and probably other things. Businesses also have certain payments they must make such as raw materials, offices costs, staff salaries etc. so I don't think it's possible for everyone to starve the economy in the way you and others have predicted.
Maybe I'm wrong, but I haven't seen any scientific evidence that inflation is necessary, and I don't fully agree with some of the assumptions in the deflationary scenario. It is possible that a small rate of inflation may still be advantages because deflation would undoubtedly slow the economy, but I'm not sure that it would do so in an unsustainable way that is impossible to bounce back from naturally.
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