Inflation gives the nation the ability to stimulate the economy

[Kurt_and_Hunter]

Many economic discussions on DU involve inflation and stimulus. The downside of inflation is well know to us all. In fact, it is suspiciously well known to us all.

Americans born after 1963 have no real adult experience with inflation. The post-1980 trend has been low inflation, flat wage, big gains for capital and bubbles.

Inflation was very high when Jimmy Carter was president, and our national mythology is that Jimmy Carter was history's greatest monster. Inflation angst was a reason people elected Ronald Reagan. Then Paul Volker, Carter's appointee, wrung inflation out of the economy unilaterally, creating a blank slate. That slate was written on by Republicans. And they have made very sure that people think of inflation as categorically bad, like it was syphilis, as opposed to an essential feature of any modern economy. They have their reasons.

Inflation is not categorically bad... it is not a thing, like polio, to be defeated utterly. It is high and self-generating inflation that is bad. 18% inflation is bad. 10% inflation is bad. 3% inflation is not intrinsically bad. 3% inflation is like having a pulse.

INFLATION GENERALLY FAVORS BORROWERS OVER LENDERS — I was around in 1978-1981 when mortgages were 14% or more. Guess what? That horror-show money was more attractive than today's record low mortgage rates... people were buying more houses. More people thought buying a house was a good idea. Interest can only be thought of in relative terms. Today's record low mortgage rates are obviously not low enough to attract enough buyers of homes.

When you borrow at fixed interest you are betting on future inflation. That bank is betting against future inflation. You, the people, then go out and vote for candidates who promise to take the bank's side in the biggest bets you make in life. Amazing, but true.

INFLATION CORRELATES WITH REAL-WAGE GROWTH — Historically workers gain *in real terms* during inflationary periods. 1945-1980 was an inflationary era. 1980-today was a non-inflationary era. Everyone reading this knows that real-wages (adjusted for inflation) have been poor during the business-friendly low inflation era.

INFLATION ENABLES THE SYSTEM TO STIMULATE THE ECONOMY — The method that has gotten us out of most down-turns is making money cheaper. The price of money in interest rate minus inflation. The Fed can stimulate the economy powerfully by making money available for cheap, relative to inflation.

But if the Fed Funds rate is 0% and inflation is 1.5% there is no way to move money into the system because the Fed cannot cut below 0%.

If inflation was 3% and the Fed Funds rate was kept at zero the effect in the economy would be equivalent to or bigger than another stimulus package.

This economy is designed to function best with inflation in the 3-4% range. The super rich benefit when it is below that, but almost nobody else does.

We need to be in that range.

[DJ13]

1. I agree, but inflation would likely hurt those on Social Security

Because since Carter's time the government has rigged the "official" means of computing inflation so they can weasel out of giving appropriate cost of living adjustments.

[Kurt_and_Hunter]

2. Actually, even despite that it would help

People with COLAs, like SS recipients, pay 100% of the non-systemic increases in commodities like gasoline and milk but don't get the benefit because most less necessary things (computers, cars, whatever) are not going up.

Any COLA increase would help seniors because they are getting killed on the only thing that are going up-- food, health-care, energy -- anyway.

[Kolesar]

4. SS pensioners get a cost-of-wages adjustment that is greater than cost-of-living..eom

[DJ13]

6. Im on SSDI, no COLA this year or next

[Kurt_and_Hunter]

9. ...

[bbgrunt]

3. limited inflation is certainly better than deflation.......the

only problem is, once either starts accelerating, it becomes the monster that eats the4 economy in one gulp.

[Abq_Sarah]

5. If unemployment were lower

Higher inflation could benefit both workers and the economy. High inflation + high unemployment = a miserable, pissed off electorate.

[notesdev]

7. The economy was not "designed"

Economies grow organically... at least those that are sustainable.

Inflation by design punishes savers and rewards those with first access to money (the banks and the wealthy).

Everyone else gets to see prices rise before they see the extra inflated dollars in their pocket, if they see them at all.

The poor, of course, and as usual, are hit the worst, since they are the last to see the income end of the expansion of the money supply.

If you think inflation is so great, ponder for a while on the benefits of the massive inflation in housing prices that we experienced over the past decade, and ask: cui bono?

[pansypoo53219]

8. i only read the 1st chapter of grieder's temple book and few

adam smith' money world(goddammit jim, i'm and artist, not an economist), but this fear of inflation seemed like bullshit.
the interest rates were lowered and kept low to improve georgee's anemic economy. savers need to be rewarded and lowering it stimulates growth, BUTH YOU CAN"T GO UNDER ZERO.
greenspan fucked us up bad.

read kevin philip's american theocracy-part 1 + 3. part 2 if you want.