What creates inflation?

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Philosophy Explorer
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What creates inflation?

Post by Philosophy Explorer »

My answer is the government creating money to drive up the money supply and nothing else, by definition.

An increase in the minimum wage won't increase the money supply, just redistribute the money from employers to employees. But this can happen. Some employees would lose their jobs. But since the spending power of the employees goes up, then they buy more goods and services which leads to more jobs which tends to even things out in that department. Now some businesses could fail, not simply due to a greater expense, but also due to people going for more expensive items (a better car e.g.) and the rich, being less rich will go for cheaper items (maybe a cheaper airplane e.g.).

Once the increase in the minimum wage takes effect and after the beneficiaries spend the money on what they want, then things will settle down and the extra money will go into savings which the banks will use for lending which helps out the economy further.

PhilX
BigWhit
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Re: What creates inflation?

Post by BigWhit »

An increase of money chasing an unchanged amount of product will result in increased prices. When the money dupply in an economy increases without an increase in the expansion of the economy, all prices will rise and that is known as inflation. Money is not wealth, it is only potential wealth.

Increased minimum wage will not only change the minimum wage, but all wages as they are relative. That increase of wages will initially result in some lost jobs and some increased buying power for a short time until wages and prices adjust. At which point those lost jobs may be recovered, but only with the loss of that buying power. Eventually, those people the minimum wage was supposed to help will find themselves in the same spot as before. This is evidenced by the fact that the minimum wage has been "needed" to be raised over and over again for the exact same reason and with the exact same effect. What's the definition of insanity again?
Philosophy Explorer
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Re: What creates inflation?

Post by Philosophy Explorer »

BigWhit wrote:An increase of money chasing an unchanged amount of product will result in increased prices. When the money dupply in an economy increases without an increase in the expansion of the economy, all prices will rise and that is known as inflation. Money is not wealth, it is only potential wealth.

Increased minimum wage will not only change the minimum wage, but all wages as they are relative. That increase of wages will initially result in some lost jobs and some increased buying power for a short time until wages and prices adjust. At which point those lost jobs may be recovered, but only with the loss of that buying power. Eventually, those people the minimum wage was supposed to help will find themselves in the same spot as before. This is evidenced by the fact that the minimum wage has been "needed" to be raised over and over again for the exact same reason and with the exact same effect. What's the definition of insanity again?
Money isn't wealth nor potential wealth. It is a measure of wealth. Wealth lies in the tangibles, the goods and services that get produced.

With a raise in the minimum wage, some effects are immediate while others take time. Also the minimum wage hasn't gone up in years which is why it's being proposed to increase it from around $7 - $8 an hour to $15 an hour, eventually.

How is there a loss in buying power when buying power initially goes up for the masses until the prices adjust?

PhilX
bobevenson
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Re: What creates inflation?

Post by bobevenson »

The government is 100% responsible for inflation. In fact the Federal Reserve has a policy of creating 2.5% inflation per year, and that whole tribe of bastards should be indicted, tried, convicted and put behind bars for the crime of grand larceny against the American people.
BigWhit
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Re: What creates inflation?

Post by BigWhit »

Philosophy Explorer wrote:
Money isn't wealth nor potential wealth. It is a measure of wealth. Wealth lies in the tangibles, the goods and services that get produced.
That's exactly what I'm getting at. You get money so you can trade it for tangibles. If tangibles = wealth and money can be traded for tangibles, that means money is potential wealth.
With a raise in the minimum wage, some effects are immediate while others take time. Also the minimum wage hasn't gone up in years which is why it's being proposed to increase it from around $7 - $8 an hour to $15 an hour, eventually.

How is there a loss in buying power when buying power initially goes up for the masses until the prices adjust?

PhilX
Because people get fired when their employers can't afford to employ everyone at the minimum wage, so production goes down. Those who keep their jobs, in theiry, have more money to buy things. So you have more money chasing less product, and prices increase. That price increase means that thise working minimum wage will be spending roughly the same % of their income on the same products, and are in the exact same place they were before. And those guys who got fired are worse off...because they're unemployed.
BigWhit
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Re: What creates inflation?

Post by BigWhit »

bobevenson wrote:The government is 100% responsible for inflation. In fact the Federal Reserve has a policy of creating 2.5% inflation per year, and that whole tribe of bastards should be indicted, tried, convicted and put behind bars for the crime of grand larceny against the American people.
100% agree.
Philosophy Explorer
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Re: What creates inflation?

Post by Philosophy Explorer »

BigWhit wrote:
Philosophy Explorer wrote:
Money isn't wealth nor potential wealth. It is a measure of wealth. Wealth lies in the tangibles, the goods and services that get produced.
That's exactly what I'm getting at. You get money so you can trade it for tangibles. If tangibles = wealth and money can be traded for tangibles, that means money is potential wealth.
With a raise in the minimum wage, some effects are immediate while others take time. Also the minimum wage hasn't gone up in years which is why it's being proposed to increase it from around $7 - $8 an hour to $15 an hour, eventually.

How is there a loss in buying power when buying power initially goes up for the masses until the prices adjust?

PhilX
Because people get fired when their employers can't afford to employ everyone at the minimum wage, so production goes down. Those who keep their jobs, in theiry, have more money to buy things. So you have more money chasing less product, and prices increase. That price increase means that thise working minimum wage will be spending roughly the same % of their income on the same products, and are in the exact same place they were before. And those guys who got fired are worse off...because they're unemployed.
The ones who get fired aren't necessarily worse off. They could find another job, especially in a strong economy.

When it comes to money and wealth, I take a narrower view. You can't eat it and live, use it for fuel nor a myriad of other uses. You can trade it, but it's value goes up and down depending on other factors so I don't equate it to wealth.

PhilX
Obvious Leo
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Re: What creates inflation?

Post by Obvious Leo »

BigWhit wrote:
bobevenson wrote:The government is 100% responsible for inflation. In fact the Federal Reserve has a policy of creating 2.5% inflation per year, and that whole tribe of bastards should be indicted, tried, convicted and put behind bars for the crime of grand larceny against the American people.
100% agree.
Make up your minds. Is the government responsible for inflation, is the Federal Reserve responsible for inflation or do neither of you blokes understand how the US financial system works?
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Hobbes' Choice
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Re: What creates inflation?

Post by Hobbes' Choice »

Philosophy Explorer wrote:My answer is the government creating money to drive up the money supply and nothing else, by definition.

An increase in the minimum wage won't increase the money supply, just redistribute the money from employers to employees. But this can happen. Some employees would lose their jobs. But since the spending power of the employees goes up, then they buy more goods and services which leads to more jobs which tends to even things out in that department. Now some businesses could fail, not simply due to a greater expense, but also due to people going for more expensive items (a better car e.g.) and the rich, being less rich will go for cheaper items (maybe a cheaper airplane e.g.).

Once the increase in the minimum wage takes effect and after the beneficiaries spend the money on what they want, then things will settle down and the extra money will go into savings which the banks will use for lending which helps out the economy further.

PhilX
It is a little more complicated than that.
Inflation is when there is too much money chasing too little product.
This can be the result of printing money, but as we have seen in the UK since the crash, printing £385 billion has not led to any inflation.
The money supply can change by other means, such as when people decide to dump their savings on the market. SInce the crash the interest rate has been low, and this has caused people to spend their saved money. This TOO has not created inflation, and no one knows why this is happening.
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Hobbes' Choice
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Re: What creates inflation?

Post by Hobbes' Choice »

Philosophy Explorer wrote:
BigWhit wrote:An increase of money chasing an unchanged amount of product will result in increased prices. When the money dupply in an economy increases without an increase in the expansion of the economy, all prices will rise and that is known as inflation. Money is not wealth, it is only potential wealth.

Increased minimum wage will not only change the minimum wage, but all wages as they are relative. That increase of wages will initially result in some lost jobs and some increased buying power for a short time until wages and prices adjust. At which point those lost jobs may be recovered, but only with the loss of that buying power. Eventually, those people the minimum wage was supposed to help will find themselves in the same spot as before. This is evidenced by the fact that the minimum wage has been "needed" to be raised over and over again for the exact same reason and with the exact same effect. What's the definition of insanity again?
Money isn't wealth nor potential wealth. It is a measure of wealth.

PhilX
NO, the money supply is flexible and can be increased and decreased at the will of the BoE, or the Federal Banks. These private companies are charged with the task of controlling the money supply, and the interest rates.
Thus "money" does not measure wealth, nor is it wealth: potential or otherwise.

Money is a metric divided to those who, in our society, have taken upon themselves the moral rights to control wealth.

In effect this control is a balance of power between those that are savers/ owners and those that are spenders.
Adjustments to the interest rate and inflation effect different sections of society.
The poor never benefit.
Philosophy Explorer
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Re: What creates inflation?

Post by Philosophy Explorer »

Hobbes' Choice wrote:
Philosophy Explorer wrote:My answer is the government creating money to drive up the money supply and nothing else, by definition.

An increase in the minimum wage won't increase the money supply, just redistribute the money from employers to employees. But this can happen. Some employees would lose their jobs. But since the spending power of the employees goes up, then they buy more goods and services which leads to more jobs which tends to even things out in that department. Now some businesses could fail, not simply due to a greater expense, but also due to people going for more expensive items (a better car e.g.) and the rich, being less rich will go for cheaper items (maybe a cheaper airplane e.g.).

Once the increase in the minimum wage takes effect and after the beneficiaries spend the money on what they want, then things will settle down and the extra money will go into savings which the banks will use for lending which helps out the economy further.

PhilX
It is a little more complicated than that.
Inflation is when there is too much money chasing too little product.
This can be the result of printing money, but as we have seen in the UK since the crash, printing £385 billion has not led to any inflation.
The money supply can change by other means, such as when people decide to dump their savings on the market. SInce the crash the interest rate has been low, and this has caused people to spend their saved money. This TOO has not created inflation, and no one knows why this is happening.
I also count savings as part of the money supply unless it's hard to convert to cash.

In regards to unemployment, I've often heard it said there are jobs for every unemployed person - it would be just a matter of matching as it's often said. I have doubts about that.

PhilX
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Hobbes' Choice
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Re: What creates inflation?

Post by Hobbes' Choice »

Philosophy Explorer wrote:
Hobbes' Choice wrote:
Philosophy Explorer wrote:My answer is the government creating money to drive up the money supply and nothing else, by definition.

An increase in the minimum wage won't increase the money supply, just redistribute the money from employers to employees. But this can happen. Some employees would lose their jobs. But since the spending power of the employees goes up, then they buy more goods and services which leads to more jobs which tends to even things out in that department. Now some businesses could fail, not simply due to a greater expense, but also due to people going for more expensive items (a better car e.g.) and the rich, being less rich will go for cheaper items (maybe a cheaper airplane e.g.).

Once the increase in the minimum wage takes effect and after the beneficiaries spend the money on what they want, then things will settle down and the extra money will go into savings which the banks will use for lending which helps out the economy further.

PhilX
It is a little more complicated than that.
Inflation is when there is too much money chasing too little product.
This can be the result of printing money, but as we have seen in the UK since the crash, printing £385 billion has not led to any inflation.
The money supply can change by other means, such as when people decide to dump their savings on the market. SInce the crash the interest rate has been low, and this has caused people to spend their saved money. This TOO has not created inflation, and no one knows why this is happening.
I also count savings as part of the money supply unless it's hard to convert to cash.

In regards to unemployment, I've often heard it said there are jobs for every unemployed person - it would be just a matter of matching as it's often said. I have doubts about that.

PhilX
Maybe you are missing the point about savings here. In regard to inflation savings qua savings are not inflationary. It's only when they are spent that inflation can be the result.
In effect, in macro terms, you cannot "save". When savings are spent it is not releasing wealth from the past, but taking from the present in which the savings are released. This is why pensions are such a problem for the future.
Philosophy Explorer
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Re: What creates inflation?

Post by Philosophy Explorer »

Obvious Leo wrote:
BigWhit wrote:
bobevenson wrote:The government is 100% responsible for inflation. In fact the Federal Reserve has a policy of creating 2.5% inflation per year, and that whole tribe of bastards should be indicted, tried, convicted and put behind bars for the crime of grand larceny against the American people.
100% agree.
Make up your minds. Is the government responsible for inflation, is the Federal Reserve responsible for inflation or do neither of you blokes understand how the US financial system works?
Leo,

I count the Federal Reserve as part of the government. It was created through an act of Congress plus there's this
which I copied from Wiki:

"The Federal Reserve System's structure is composed of the presidentially appointed Board of Governors or Federal Reserve Board (FRB), partially presidentially appointed Federal Open Market Committee (FOMC), twelve regional Federal Reserve Banks located in major cities throughout the nation, numerous privately owned U.S. member banks, and various advisory councils.[14][15][16] The federal government sets the salaries of the Board's seven governors...."

So you can't say that the Federal Reserve is totally independent of the government. There is influence.

PhilX
Obvious Leo
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Re: What creates inflation?

Post by Obvious Leo »

Philosophy Explorer wrote: So you can't say that the Federal Reserve is totally independent of the government. There is influence.
The Federal Reserve is NOT part of the government, any more than the Supreme Court is. I'm not suggesting that there is no influence from government but in fact this influence would be vastly less than the influence from the financial sector.
bobevenson
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Re: What creates inflation?

Post by bobevenson »

Obvious Leo wrote:Make up your minds. Is the government responsible for inflation or is the Federal Reserve responsible for inflation?
The Federal Reserve is subject to oversight by Congress, which periodically reviews its activities and can alter its responsibilities by statute. Also, the Federal Reserve must work within the framework of the overall objectives of economic and financial policy established by the government. Therefore, the Federal Reserve can be more accurately described as independent within the government. In other words, the government can't plea bargain its way out of jail.
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