Skip to comments.In Fed and Out, Many Now Think Inflation Helps
Posted on 10/27/2013 1:10:29 PM PDT by reaganaut1
WASHINGTON Inflation is widely reviled as a kind of tax on modern life, but as Federal Reserve policy makers prepare to meet this week, there is growing concern inside and outside the Fed that inflation is not rising fast enough.
Some economists say more inflation is just what the American economy needs to escape from a half-decade of sluggish growth and high unemployment.
The Fed has worked for decades to suppress inflation, but economists, including Janet Yellen, President Obamas nominee to lead the Fed starting next year, have long argued that a little inflation is particularly valuable when the economy is weak. Rising prices help companies increase profits; rising wages help borrowers repay debts. Inflation also encourages people and businesses to borrow money and spend it more quickly.
The school board in Anchorage, Alaska, for example, is counting on inflation to keep a lid on teachers wages. Retailers including Costco and Walmart are hoping for higher inflation to increase profits. The federal government expects inflation to ease the burden of its debts. Yet by one measure, inflation rose at an annual pace of 1.2 percent in August, just above the lowest pace on record.
Weighed against the political, social and economic risks of continued slow growth after a once-in-a-century financial crisis, a sustained burst of moderate inflation is not something to worry about, Kenneth S. Rogoff, a Harvard economist, wrote recently. It should be embraced.
The Fed, in a break from its historic focus on suppressing inflation, has tried since the financial crisis to keep prices rising about 2 percent a year. Some Fed officials cite the slower pace of inflation as a reason, alongside reducing unemployment, to continue the central banks stimulus campaign.
(Excerpt) Read more at nytimes.com ...
The problem with the economy is that government regulation and taxation, along with the welfare state, discourage businesses from expanding and people from working. Inflation fell during the Reagan administration, and the economy grew (after an initial recession).
High inflation raises the tax rate on investment, since the definitions of capital gains and investment income for tax purposes do not account for inflation.
Inflating the currency is what you do when you have racked up a mountain of debt and you don’t have a clue of how to meaningfully grow the economy.
Inflation is good? I’m never going to get used to communism.
Weimar and Zimbabwe aren’t examples enough??
Inflation is theft.
Hey, if you’re the president of an out-of-control government, and taxes are already sky-high, screwing people out of their money via inflation is a heck of a lot easier than reining in your spending and paying off your debts.
“a sustained burst of moderate inflation is not something to worry about...”
Tell us that when we have hyperinflation & we start using our dollars for toilet paper.
I am so sick of the Washington Post or the TV Money Shows with the experts telling us that the inflation is the solution to getting us out of our debt problems.
Yeah the comment that inflation is, "widely reviled as a kind of tax on modern life," struck me.
Inflation is a tax on savings, and if anything, "saving" is not an aspect of "modern" life.
There so many things wrong with that statement that I must now be living on a different planet.
“The Fed has worked for decades to suppress inflation, ....”
What complete and utter B.S.! The Fed (along with central banks in other countries, including Canada) has spent over a decade fighting deflation. That’s the exact opposite of working to “suppress inflation. What does the New York Times think QEI, QEII, etc. were all about?
I’ve heard that the root cause of inflation is increasing the money supply.
In recent years, the Federal Reserve Bank has been buying government bonds, or in effect, creating money.
The inflation rate has been low because the economy has been in a prolonged slump.
But, if the economy picks up steam, all of this money which has been created out of thin air starts circulating more, and then we will see inflation.
We can have economic growth with low inflation, as we have seen at other times in history, such as the Reagan years.
Can’t wait to see who or what Obama blames inflation on, if we see sharp increases in inflation. I’m sure he would claim credit for an economic rebound, but would seek to cast blame elsewhere for a rebound of inflation.
Inflation is good? Sure,except that they will keep interest rates low too. 10% inflation, 1% CD rates and 0% wage growth. What’s not to luv?
The NY Times has so abdicated their journalistic responsibility that they will accept, even trumpet, this drivel without a second of thought or hesitation.
The famous quote of Hitlery...”What difference, at this point, does it make”
Damned if you do, Damned if you don’t!
I have a standing theory, a paradigm really. Governments, especially democratically elected governments have a voracious need to spend. They begin by financing their spending by direct taxation. Taxation is a tax on present income. They tax everything they can, and push those taxes to the limit. When they run out of taxation (politically), they proceed to tax the future by borrowing money. When they borrow so much that they can borrow no more, they proceed to tax the past through inflation. Inflation is a tax on money that you earned in past and had socked away. Inflation is the last option (short of out and out confiscation of property) that governments have to feed their spending addiction. After that, collapse.
As the Clinton Administration took office in 1993 they believed that some of their policies could increase inflation. They did a study to try to find possible positive outcomes of inflation. What I remember is that they said the real estate industry would gain from inflation.
Considering the government shutdown debacle, in which the big loser was the idea that anyone will put up with cutting the budget, the only political choice left is to try and spark inflation. I don't think it is that easy though, because of the velocity of money factor. People are just taking the money and paying off debt, or saving it, not spending it and increasing the velocity. Without velocity, there is no inflation.
Near-zero interest rates on savings is theft.