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Inflation happens when there is too much money in the economy. The total count of money isn’t really a thing, it is the amount of money * the rate at which it c
by aaronblohowiak 7y ago
Inflation happens when there is too much money in the economy. The total count of money isn’t really a thing, it is the amount of money * the rate at which it changes hands. So, in order for there to be inflation you have to have the amount of “money*hands” grow faster than consumption. Since we are at a period of extreme illiquidity (money isn’t moving around,) we can afford to add more money into the system. When the rate of money transfer picks up, you need to remove money from the system (raise interest rates.)
- swsieber 7y agoI can see two sources of inflation: Moving the same stuff for more money. Moving less stuff for the same amount of money. It's seems like a bunch of free with supply side scarcity of the basics due to hording could cause inflation... Maybe? I have hardly any background in economics, so feel free to point out the holes. These are just my thoughts after reading your comment.
- aaronblohowiak 7y agoThe first is what inflation is. The second is what we call a retraction or recession, and we have plenty of those where the "price of money" (buying power and cost to borrow) does not change. The third thing (which you did not mention) is "stagflation", which is basically "moving less stuff for more money". Being constrained on the supply side would indeed cause prices to rise, but this is not inflation. Inflation is where the entire supply/demand curve is shifted (because money itself is worth more or less.) As an example -- in inflation, both your gold necklace and your toilette paper would go up in price. In supply constraint, only your tp would go up in price. The value of a dollar hasn't changed (as evidenced by the price to sell your necklace.) I'm not an economist, but I make money gambling on options as a hobby.