3 ms·
You are confused on concepts of inflation and bubbles. Bubble happens when an actual value of something gets disconnected from its price. When people buy somet
by lmilcin 6y ago
You are confused on concepts of inflation and bubbles.
Bubble happens when an actual value of something gets disconnected from its price. When people buy something for ever increasing prices without regard for actual value because they believe the price is going to go up.
In a bubble only the price of that one thing goes up, in relation of everything else.
In an inflation prices are representing the value of products but as value of money decreases the numbers representing prices must go up. In this case the price increase is caused not by increasing demand for the product but rather increasing supply of money.
Printing money causes value of existing money to be diluted because if tomorrow we have twice the amount of money in circulation than today but we are still buying same amount of products and services, then we will need to pay roughly twice the price to keep market equilibrium.
- Empact 6y agoI disagree. Consider the housing bubble - it was tipped off by the response to the internet bubble, low rates from the fed so that people would borrow to get the economy moving again, e.g. by buying housing. Low rates result in more lending and buying, more lending and buying leads to price appreciation (pay attention, as this sequence is playing out again now), and eventually enough price appreciation and easy money leads to irresponsible lending and mania. The depreciation of the dollar through easy money lending has indirectly caused the bubble through the practices it encouraged.