inflation view

Discussion in 'Economics' started by morganist, Nov 21, 2009.

  1. i have a bind.

    i think there will be inflation for the following reasons.

    there was or still is a deflationary gap or at least inflation below the target. this arose partly due to people saving more money although there were other reasons too, i would say this is the main one. this meant people decided to save money due to fear or expectations prices would fall in the future. so the government lowered rates and printed more money off.

    this in itself would indicate inflation due to more money in the economy. however the point made previously by libertad is that the government only acted to fill a gap the free market did not. this is true. however this is the problem as i see it. the deflation was not created by a reduction in demand create by people spending their money in other countries it was created by people holding that money till later. so when they use that money later when combined with the money introduced through quantitative easing it would create an inflationary gap as the money held for future use did not disappear and the new money is now there in addition.

    if the deflationary gap occurred from natural demand alteration by spending money in another country the money cannot re-enter the economy in the same way it has left the country the saved money has not.

    this is something i am not sure about. any thoughts.
  2. Perhaps why this is so difficult to get a handle on the situation.

    We think in terms of 50 united states, imo this country looks like 50 assorted 3rd world countries and the Fed is handing out foreign aid in varying sums and trying to stabilize the economy.

    No clue where all this stimulus money is going or has gone unless we the people along with big business are just cash churners as the money makes it way back to the Fed.

    Maybe no one can hold onto money long enough to have an effect on inflation, deflation, etc.
  3. good analogy.