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What's inflation?
Town Hall ^ | November 16, 2005 | Walter E. Williams

Posted on 11/16/2005 9:38:57 AM PST by Sonny M

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A good read.

And something that seems to escape almost every liberal when it comes to economics.

The ignorancy of the left where they credit everything but monetary policy (i.e. wal mart, billy joe bob with one glass eye, oil companies, etc) with inflation or undercutting it annoys me to no end.

1 posted on 11/16/2005 9:38:58 AM PST by Sonny M
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To: Sonny M
One price or several prices rising is not inflation.

Increases in money supply are what constitute inflation, and a general rise in prices is the symptom

A good read.

And something that seems to escape almost every liberal when it comes to economics.

I'm not sure you could get many Freepers to acknowledge the bolded statements of fact. Heck, look at how many Freepers support the "Fair Tax" and you can see that the level of understanding of economics isn't high here.

2 posted on 11/16/2005 9:45:14 AM PST by SolidSupplySide
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To: Sonny M

I thought inflation was when the money suppy increased faster than the GDP. Increasing prices do not cause inflation, inflation causes increasing prices.


3 posted on 11/16/2005 9:45:52 AM PST by Da Bilge Troll (Defeatism is not a winning strategy!)
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To: Sonny M
It gets better.

The prices of all commodities go up in times of inflation. This includes labor. Now, those wage increases seem initially like a good thing, right? Of course not. First of all, employees are only making about as much as they were before because inflation is eating away at their purchasing power. Second, the savings that they have stored up are also losing their potency (savers are creditors, after all). Third, the increased dollar-amount income (albeit with little or no corresponding increase in purchasing power) bumps people into higher tax brackets than they would otherwise be in, thus causing them to pay a greater portion in taxes than they otherwise would, thus reducing the purchasing power of their paycheck as a whole, not just of each individual dollar.

So beware a raise in times of inflation; you could just be sprinting forward to stay right where you are.

4 posted on 11/16/2005 9:46:45 AM PST by Gordongekko909 (I know. Let's cut his WHOLE BODY off.)
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To: Da Bilge Troll
I thought inflation was when the money suppy increased faster than the GDP.

You are correct!!

Milton Friedman says, "[I]nflation is always and everywhere a monetary phenomenon, in the sense that it cannot occur without a more rapid increase in the quantity of money than in output."

5 posted on 11/16/2005 9:48:50 AM PST by Toddsterpatriot (If you agree with Marx, Krugman and the New York Times please stop calling yourself a conservative!!)
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To: Sonny M

Same thing: discovery and development of new deposits of precious metals [be it Cortez/Pisarro in 16th century or Alaskan and SA gold around 1900] was inflationary. Yes, to find a juicy gold deposit is a bit harder than revving up a printing press, but still eminently possible.


6 posted on 11/16/2005 9:50:19 AM PST by GSlob
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To: Sonny M
seems to escape almost every liberal when it comes to economics

Actually liberals count on it. So do some conservatives. Governments historically have run up great debts and then defaulted by means of inflation. President Bush is doing it now, big time.

7 posted on 11/16/2005 9:50:51 AM PST by ThanhPhero (di hanh huong den La Vang)
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To: Sonny M
First, let's decide what is and what is not inflation. One price or several prices rising is not inflation. When there's a general increase in prices, or alternatively, a reduction in the purchasing power of money, there's inflation.

That's true by definition, but in practice inflation doesn't show up everywhere at once. Ultimately inflation is the same thing as currency devaluation, therefore one would look to something like the dollar index (a measure of the dollar against major currencies) as an early indicator. Another place to look is commodities. The Bush dollar was made weak by Greenspan keeping interest rates well below market levels (reckless government growth has also helped). The dollar index has reflected the devaluation of the dollar and has shown up in commodities, especially oil and housing prices are linked to the low interest rates that were used to weaken the dollar.

By the time inflation shows up in the general price level it's already been known for quite some time by people who follow market indicators.

8 posted on 11/16/2005 9:54:28 AM PST by Moonman62 (Federal creed: If it moves tax it. If it keeps moving regulate it. If it stops moving subsidize it)
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To: ThanhPhero
Governments historically have run up great debts and then defaulted by means of inflation. President Bush is doing it now, big time.

Really? What's inflation now?

9 posted on 11/16/2005 9:59:41 AM PST by Toddsterpatriot (If you agree with Marx, Krugman and the New York Times please stop calling yourself a conservative!!)
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To: Sonny M; A. Pole

This is how we're sticking it to the ChiComs foolish enough to buy our national debt.


10 posted on 11/16/2005 10:00:36 AM PST by Incorrigible (If I lead, follow me; If I pause, push me; If I retreat, kill me.)
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To: Moonman62
Ultimately inflation is the same thing as currency devaluation, therefore one would look to something like the dollar index (a measure of the dollar against major currencies) as an early indicator.

So the current strength of the dollar means what?

11 posted on 11/16/2005 10:00:54 AM PST by Toddsterpatriot (If you agree with Marx, Krugman and the New York Times please stop calling yourself a conservative!!)
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To: Toddsterpatriot

It means the yield curve is flat eleven months after GWB said "Greenspan knows what to do" when he was asked about the weakness of the dollar. The dollar is still much weaker than when GWB took office. Even so, we should see a relaxation in the inflationary pressures we've been seeing the past few years.


12 posted on 11/16/2005 10:09:03 AM PST by Moonman62 (Federal creed: If it moves tax it. If it keeps moving regulate it. If it stops moving subsidize it)
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To: Moonman62
It means the yield curve is flat eleven months after GWB said "Greenspan knows what to do" when he was asked about the weakness of the dollar.

So a strong dollar leads to a flat yield curve? Or does a flat yield curve lead to a strong dollar?

Even so, we should see a relaxation in the inflationary pressures we've been seeing the past few years.

Sounds good.

13 posted on 11/16/2005 10:19:05 AM PST by Toddsterpatriot (If you agree with Marx, Krugman and the New York Times please stop calling yourself a conservative!!)
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To: Sonny M

Money can be viewed as a country's stock.

It I print more money (issue more stock) than there is value in the underlying (company) country, I devalue the existing money (or dilute the existing stock).

As the existing money is devalued, it takes more of it to buy the same thing.

If the country's "value" goes backwards quickly, you get what will be referred to as hyper inflation.

In a country with money backed by a limited quantity of a thing of value, like gold for example, the money would actually increase in purchasing power as time went on. The price of things would go down in dollar terms.

But it is not possible to have that kind of system and to steal from the common man at the same time.

So our countries money is based on what, good faith?? Yes and nothing more.


14 posted on 11/16/2005 10:24:24 AM PST by Pylot
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To: Toddsterpatriot

A flat yield curve leads to a stronger dollar but so does a strong economy and a restrained government, which would be the preferable mechanisms. Whipsawing the dollar one way or another is only good for making the government somehow look relevant when it comes to managing the economy.


15 posted on 11/16/2005 10:31:34 AM PST by Moonman62 (Federal creed: If it moves tax it. If it keeps moving regulate it. If it stops moving subsidize it)
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To: Sonny M
I don't disagree with the article, I think it's excellent and thanks very much for posting it, but I am hazy on something.

Wasn't there a huge increase in the money supply in '99-'00 and, if my memory is correct, why wasn't there a corresponding inflationary reaction?

Granted productivity did go up, but I recall the increase in the money supply to be fairly significant.

Appreciate any clarification.

16 posted on 11/16/2005 10:37:21 AM PST by Proud_texan ("Moderation in the pursuit of justice is no virtue." - Barry Goldwater)
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To: Pylot
So our countries money is based on what, good faith?? Yes and nothing more.

Yep. Most of our country's "wealth" today really is nothing more than an IOU of some kind or other. The system generally works OK... as long as everyone doesn't try to cash in on their IOUs at the same time!

17 posted on 11/16/2005 10:40:40 AM PST by jpl
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To: Proud_texan
Wasn't there a huge increase in the money supply in '99-'00 and, if my memory is correct, why wasn't there a corresponding inflationary reaction?

Supposedly that money went into stocks and helped fuel the NASDAQ bubble. Then Greenspan pulled it out too quickly and caused the market to tank and the recession to begin.

18 posted on 11/16/2005 10:41:37 AM PST by Toddsterpatriot (If you agree with Marx, Krugman and the New York Times please stop calling yourself a conservative!!)
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To: Moonman62
A flat yield curve leads to a stronger dollar but so does a strong economy and a restrained government, which would be the preferable mechanisms.

I understand that a strong economy would lead to a stronger dollar but have never heard that a flat yield curve leads to a stronger dollar. Do you have any links that deal more with that assertion?

19 posted on 11/16/2005 10:43:35 AM PST by Toddsterpatriot (If you agree with Marx, Krugman and the New York Times please stop calling yourself a conservative!!)
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To: Proud_texan
Wasn't there a huge increase in the money supply in '99-'00 and, if my memory is correct, why wasn't there a corresponding inflationary reaction?

If I got it right, I think we were actually hiking rates at that time.

Its part of the reason so many folks blamed Greenspan for "bursting the bubble".

Also, I'm not sure if it was then exactly, but Bernandke might have made (or stolen) his friedman quote about "helicopters" to combat deflation.

I'm pretty sure we were decreasing the money supply around then, because only a couple of years later we started to rapidly increase it via rate cuts.

20 posted on 11/16/2005 10:47:19 AM PST by Sonny M ("oderint dum metuant")
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