I have a Question about the Dollar

[Justin The Terrible]

The dollar. It's value is dropping due to inflation. I ask What is the point of inflation?..it does nothing. The Price goes up, worker's wages go up to accommodate. So in essence it is still the same price it began with. What did inflation accomplish right there? Other then decreasing the value of what people have saved in banks.

[Arcadian Empire]

Inflation is the general rise of prices. Worker's rates aren't exactly pushed up to go with inflation, sometimes their wages are only lifted to part of the inflation rate - this is where the concept of "real wages" comes in to determine how much a worker's purchasing power is.

Basically inflation is caused by printing money, I think. As we all print money every day, there is more "cash" in the economy - and therefore prices will be pushed up to ensure that 5% of profit stays at 5% profit.

Or at least that's my understanding of it.

Interest rates are key to this - as interest is the price of money, if there is lots of money (high inflation), interest rates should be pushed up higher to make sure money is more expensive to get - and therefore ensure that not much money is needed. Essentially, high interest rates = low inflation, high interest rates = expanding economy.

So inflation is good.

[Justin The Terrible]

most jobs wages are pushed up when inflation pushes up though.. i guess idk..

[Villalba]

Let's say you began to save $3000 from 2000 and let's say tomorrow China and the rest of the world demands to be paid back. Since the US runs a deficit our budget cannot handle it, even if you increase everyone's income tax to 100%. So the only way to pay it back, is to print it from out of nowhere. So from $3000 from 2000, to 2009 is a savings of $27,000. And the nation prints $11 trillion dollars without something to back it up with. Your $27,000 would be worthless. Heck you will probably begin to see $10 trillion bank notes.

[Melidan]

Originally Posted by Arcadian Empire

So inflation is good.

* Melidan facepalms

AE, apply for a job at the Federal Reserve and put that on your resume. You're hired.

Inflation in One Page
by Henry Hazlitt

1. Inflation is an increase in the quantity of money and credit. Its chief consequence is soaring prices. Therefore inflation—if we misuse the term to mean the rising prices themselves—is caused solely by printing more money. For this the government's monetary policies are entirely responsible.*

2. The most frequent reason for printing more money is the existence of an unbalanced budget. Unbalanced budgets are caused by extravagant expenditures which the government is unwilling or unable to pay for by raising corresponding tax revenues. The excessive expenditures are mainly the result of government efforts to redistribute wealth and income—in short, to force the productive to support the unproductive. This erodes the working incentives of both the productive and the unproductive.*

3. The causes of inflation are not, as so often said, "multiple and complex," but simply the result of printing too much money. There is no such thing as "cost-push" inflation. If, without an increase in the stock of money, wages or other costs are forced up, and producers try to pass these costs along by raising their selling prices, most of them will merely sell fewer goods. The result will be reduced output and loss of jobs. Higher costs can only be passed along in higher selling prices when consumers have more money to pay the higher prices.*

4. Price controls cannot stop or slow down inflation. They always do harm. Price controls simply squeeze or wipe out profit margins, disrupt production, and lead to bottlenecks and shortages. All government price and wage control, or even "monitoring," is merely an attempt by the politicians to shift the blame for inflation on to producers and sellers instead of their own monetary policies.*

5. Prolonged inflation never "stimulates" the economy. On the contrary, it unbalances, disrupts, and misdirects production and employment. Unemployment is mainly caused by excessive wage rates in some industries, brought about either by extortionate union demands, by minimum-wage laws (which keep teenagers and the unskilled out of jobs), or by prolonged and overgenerous unemployment insurance.*

6. To avoid irreparable damage, the budget must be balanced at the earliest possible moment, and not in some sweet by-and-by. Balance must be brought about by slashing reckless spending, and not by increasing the tax burden that is already undermining incentives and production. * * *
**

Please watch these;

[ame="http://www.youtube.com/watch?v=uD64owa6xh4"]http://www.youtube.com/watch?v=uD64owa6xh4[/ame]

[ame="http://www.youtube.com/watch?v=pC8I3J-1GSM"]http://www.youtube.com/watch?v=pC8I3J-1GSM[/ame]

[The Corporal]

Here's a short version of everything Mel posted:

[ame]http://en.wikipedia.org/wiki/Hyperinflation_in_Zimbabwe[/ame]

[Villalba]

Originally Posted by The Corporal

Here's a short version of everything Mel posted:

http://en.wikipedia.org/wiki/Hyperinflation_in_Zimbabwe

Corp i do hope your wrong lol

[Arcadian Empire]

YES! I CAN HAVE A JOB AT THE FEDERAL RESERVE!

Now to make the inflation rate to a number that pleases me...

A = 1, E = 5.

1.5%



Or 15.

[Imperial]

I think Melidan pretty much nailed the point. Perhaps inflation domestically isn't a huge problem, but in international terms, it is. Fortunes can be made or lost simply through currency exchange. The weaker our currency is vis-à-vis foreign currencies, the more complex the situation becomes. This affects our trade, employment, outsourcing, foreign investment, etc. All of it can be affected by our money's value.

Also let's consider the fact that we sell our debt to fund our deficit spending. That debt is sold in U.S. dollars. People like China, Russia, Japan and many others hold our currency in reserve. They use it to keep their own currencies stable. If our currency begins to tank, countries will dump their reserves and no one will purchase our debt. No one purchasing our debt means no money to spend on government.

[Melidan]

Exactly! Boomshakalaka.