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Inflation is inflation expectation. People (the market) starts behaving differently when they expect rising prices. Best thing i read on the topic is how the B
by cf141q5325 4y ago
Inflation is inflation expectation. People (the market) starts behaving differently when they expect rising prices.
Best thing i read on the topic is how the Brazilian hyperinflation was fixed
https://text.npr.org/130329523 https://text.npr.org/130329523
Once you look at it from this angle most of this starts making a lot more sense. Especially post-Austerity monetary policy
edit:
tldr: They invented a new theoretical currency. All prices were each month listed in the actual price in the old currency and the price in the new currency (that didnt exist yet). And each month the new currency was redefined so that stuff still cost the same in the theoretical currency. They did this for a few months till they declared inflation fixed and creating the new currency that had "proofed" its stability the previous months.
And Abrakadabra, people believed and inflation was fixed through the introduction of the Brazil Real. Obvious when you think about it, its not called fiat currency for nothing.
>Say, for example, that milk costs 1 URV. On a given day, 1 URV might be worth 10 cruzeiros. A month later, milk would still cost 1 URV. But that 1 URV might be worth 20 cruzeiros.
>The idea was that people would start thinking in URVs -- and stop expecting prices to always go up.
- Retric 4y ago> Inflation is inflation expectation. That’s assuming the government is continuing to print money. Without that, inflation is an exponential function that quickly runs into real world limits. That said why governments are printing money is often a very tricky problem. It can for example be used as a substitute for more obvious taxes in a highly corrupt society.
- cf141q5325 4y agoI assume you mean "isnt continuing" But that also doesnt seem to be the case. The question apparently is where that money is going. As long as it remains outside of the real economy it seems to be irrelevant. And even if it starts seeping into the real economy, it seems that the efficient market hypothesis is more of a belief then anything else. Which is no surprise if you realize that market inefficiencies allow you to make enormousness profits. Especially if you need to be a certain size to exploit them
- Retric 4y agoNo, I meant inflation can only continue long term while the government prints money. The problem is suppose an egg costs 10 X today and 20 X in 1 month. Sure in 1 month it might work but in 5 years it’s costing ~1.1 X 10^18 X and there is simply nowhere near enough X for a single transaction of anything. Which isn’t to say the economy would be better off in the short term. High inflation can be semi stable for long enough to be ruinous.
- cf141q5325 4y agoMoney creation also functions via loaning money into existence. As long as people keep loaning, no money printing is necessary.