Why is inflation bad?

It's just a rise in price...

to counter that, print mo' money!

someone explain.

Originally posted by EmLasker
It's just a rise in price...

to counter that, print mo' money!

someone explain.

It devalues the notes that people already have. Thus, it decreases respect for, and the potential for future investment in your currency.

Say I'm a Chinese factor owner. I sell 42,000 widgets to Walmart for $2,000,000 USD.

Okay, now I have $2,000,000 USD. There are fundamentally IOU notes from the US Treasury.

Now, say that the US prints another trillion dollars to stimulate its economy. Eventually, because there is so much more currency out there, hyperinflation ensues. I still hold $2,000,000 in US Treasury notes. However, now that $2,000,000 has lost 25% of its purchasing power.

Next time, am I going to be a sucker again and sell my widgests to Walmart for dollars? No, I'm going to sell my widgets to Ikea for Euros. I don't want any more US treasury notes. the US government has already proven it has no respect for its value. Now I'm going to invest in Japan on Europe instead. Well, now, the Americans can't get those same cheap widgets. 🙁

Similarly. If I have extra money to invest, I'll be less likely to invest in US bonds for the same reason.

The other related problem with inflation is that it devalues your currency against other currencies. This decreased the purchasing power of your citizens buying foreign goods and thus could adversely affect your citizens' standard of living.

Of course, there are benefits to all this as well, but you just asked for the downside.

Originally posted by EmLasker
It's just a rise in price...

to counter that, print mo' money!

someone explain.

google "zimbabwe inflation"

Originally posted by EmLasker
It's just a rise in price...

to counter that, print mo' money!

someone explain.

Inflation is not "bad". It's been around for a long time. Too much inflation, happening too quickly, however can be harmful to any economy. 😏

Originally posted by sh76
It devalues the notes that people already have. Thus, it decreases respect for, and the potential for future investment in your currency.

Say I'm a Chinese factor owner. I sell 42,000 widgets to Walmart for $2,000,000 USD.

Okay, now I have $2,000,000 USD. There are fundamentally IOU notes from the US Treasury.

Now, say that the US prints another trill ...[text shortened]...
Of course, there are benefits to all this as well, but you just asked for the downside.

William Jennings Bryan was right about Free Silver.

Originally posted by sh76
It devalues the notes that people already have. Thus, it decreases respect for, and the potential for future investment in your currency.

Say I'm a Chinese factor owner. I sell 42,000 widgets to Walmart for $2,000,000 USD.

Okay, now I have $2,000,000 USD. There are fundamentally IOU notes from the US Treasury.

Now, say that the US prints another trill ...[text shortened]...
Of course, there are benefits to all this as well, but you just asked for the downside.

Now that we have had sh76's lecture on inflation we are now ready for the lab portion of his education. Obama will be his lab instructor. After all, its not good enough to just conceptualize it, we must also have hands on experience to fully understand its meaning.

Originally posted by EmLasker
It's just a rise in price...

to counter that, print mo' money!

someone explain.

Economic forces such as inflation have consequences that have varying effects on the rest of the economy, good and bad.

In the case of inflation's downside (especially above 0-3% annual):

higher "shoe leather costs" as people seek to spend their money more quickly before it loses value, so they make more frequent and immediate trips shopping as soon as they get money.

savings decline, which reduces emergency reserves and cushions for rainy days

investment drops as it becomes harder to predict and hedge against future price changes (higher inflation is also more unpredictable and with bigger swings).

economic growth slows considerably with the drop in investments in future technologies/companies/processes/businesses.

the value of existing cash drops

economy loses relative competitiveness to other countries

creditors are punished unexpectedly and interest rates rise accordingly

reducing inflation back down costs a significant trade-off with GDP (Phillips Curve)

Originally posted by whodey
Now that we have had sh76's lecture on inflation we are now ready for the lab portion of his education. Obama will be his lab instructor. After all, its not good enough to just conceptualize it, we must also have hands on experience to fully understand its meaning.

Unfortunately, I think you're right about that. If nothing else, when the economy recovers (and it will), there has to be inflation to account for these extra trillions of dollars floating around in the economy.

Was Carter to blame for the inflation rate during his time in office, or was it caused by the mid-70s oil crisis?

Originally posted by EmLasker
It's just a rise in price...

to counter that, print mo' money!

someone explain.

Inflation isn't bad nor good. It's simply the result of income/profit struggles within or between
economies. I would say madness, but the word has little meaning in the world of economics.

Originally posted by whodey
Now that we have had sh76's lecture on inflation we are now ready for the lab portion of his education. Obama will be his lab instructor. After all, its not good enough to just conceptualize it, we must also have hands on experience to fully understand its meaning.

Obama's just doing what Bush did. Nice try, though.

Originally posted by bill718
Inflation is not "bad". It's been around for a long time. Too much inflation, happening too quickly, however can be harmful to any economy. 😏

any inflation is harmful to the economy

Originally posted by uzless
google "zimbabwe inflation"

is that a porn site? it might have virus on it, i don't trust you.

Inflation is mostly bad because it causes a decresing purchasing power. There are circumstances in which it can be good though. Suppose France & Germany are trying to sell widgets (I'm talking pre-euro). Let's say France suddenly devalues it's currency so it's now easier to buy French francs on the money markets, so you can buy widgets cheaper from France. This will stimulate the French economy, and make more jobs for French people. Of course, when French people go abroad, their francs will be weaker, but that will also cause French people to stay in France and spend their money there, and also cause Germans to spend their holidays in France too.

Well inflation works more or less the same, just over a longer timescale. Imagine if France, instead of suddenly devaluing, decided just to print more francs, more government bonds etc. Well, it might take a while before the international market copped it, but eventually francs would lose value.

I've gotta say, look at the video "Money as debt" on google video or youtube. It completely changed the way I think of money.

f.