Topic: How does inflation start (Read 3244 times)

I believe it's multiple things that cause inflation.

The increase of money supply is the biggest factor, but the way the money supply is increased, is in multiple ways as well.

One of the most import ways the money supply gets boosted is by the loans people take from banks and credit companies.

When more people have more spendable income (doesn't matter if it's a loan or actual income) the people will want to buy more goods, but unless the country increases their production, the prices will need to rise because supply becomes too small for the demand.

This is why i think capitalism and money in general is a pretty bad idea. People tend to think having more money, and giving money to the poor will solve their problems, but it won't.

People think that if robots take over their jobs, it's a bad thing, but it shouldn't be. Not if we use robots to work as 'slaves' for the benefit of mankind. So that we have the cheapest possible labor and EVERYONE can be as wealthy (in terms of food, clothes, homes and luxury items) as the earth can sustain (as long as we don't exhaust the planet's resources, we can make robots do pretty much everything, and let everyone live in luxury. In such a system, any form of money/currency is redundant. We can even communally invest (resources and knowledge) in space flight and space colonization in case we outgrow our earth (or in case our sun goes nova, but we will obviously not experience that).

Instead, we seem to think it's better to have little kids in Asia do our jobs instead, for very low wages and long work days, just so that we can buy relatively cheap clothes and electronics that could have just as easily been made by robots. The only reason they don't do that, is because the only way to feel rich, is by having someone who is poorer than you. But i don't care about being rich, I care about having wealth, not for just myself, but for the whole planet. (Note the difference).

Inflation cannot be fully explained by just one factor alone. Printing money by itself does not cause inflation.
There are both supply and demand side shocks that can contribute to inflation. The most basic of those is increased spending in an economy caused by lower interest rates.

I remember briefly from my economics course that it was mentioned as an example of why inflation occurs:
Employees demand a pay raise, employer eventually agrees and increases their wage by 5%. But to cover that increase, he also raises prices by 5%. Bam: inflation.

Many things have an effect on inflation. I heard a political discussion on TV today where my government was talking about how their goal was to keep inflation at 2% .. they do this through changing policies and even aiming for a certain level of unemployment (if everyone was employed and demanded a certain income, inflation would be too high.. so we need some people to be poor.. essentially).

In fact, inflation is the expansion of the monetary base, even if it's below the economic/population/general growth rate.

I should have clarified.  I meant that price inflation is not discussed, as anything other than a side effect, by professionals in the field of economics.  You speak of professionals in the field of governance.  In other words, professional liars.  You should be more careful about whom you listen to.

Money once worked because this thing called "communication", was sooo slooow...

You could raise minimum-wage, then say, one year later... Well, now everyone makes more money, so we have to charge more taxes... then say a year later... prices went up, so we had to adjust minimum-wage... repeat in sloooow moootion... year after year...

Now we have the internet, and we know the prices before the Govt does, and before banks do. Shit just happens faster now, and you can't even tell which came first... the chicken or the egg... (It was the rooster, but that isn't important right now...)

There is no more delay, and the "games" they play, pushing numbers around is failing them. They can't hide things anymore, they can't cheat us anymore, and they are failing because they are still trying to do it. That is like having your hand still in the cookie-jar, getting caught with it still in there, then trying to take my wallet with the other hand, while I am slapping the cuffs on both of your wrists.

Time for a new game called... "mother may I", because "hide and go seek" doesn't work in an open field. Now they have to ask us, and we have to give them permission... Like they originally were supposed to do. Instead of doing what they want, hiding it, covering things up, and pointing fingers at one another or those who are no longer in office to take responsibility.

Inflation is a byproduct of desire. We all want more, but we all get less. Thus...

"Give me a dollar, and I will tell you." <-- That is how it "starts". (Exchange of one virtual value for another, at a loss to you, but not me.)

Let me break that down for you...

"I have the knowledge, and now your dollar"
"You have the knowledge, but no more dollars. You tell someone for a dollar."
"I am still telling people for a dollar"
"Now we have the knowledge, and the dollars, and the people we told, only have the knowledge and no dollars."

Repeat until all dollars are short, and all knowledge is too expensive to buy, or everyone knows it. A bunch of people still need to get dollars they lost... We have the dollars they want... They have to do something for it. Much more than telling me what we already know.

Found a shorter answer...
"Loss" <-- That is another way inflation "starts".

(But loss alone is not what starts it. Just one way to describe the prior answer. Loss of money/value/funds/assets would be more specific. But only if those losses are realized and burdened onto someone-else, for gains to you.)

LOL, Updated my signature to my own quote...

The banks closest to the source get the most value, then as the new money effects the economy the middle class and poor get screwed the most from inflation.

Also, there are many prices, many goods. Some might increase while others might decrease or stay stable at the same time. This is the problem with "inflation = price inflation". Which prices do you take in account? You might create some basket of goods or speak about "general price level", but it will never suit all consumers.

Interesting.  I must bear this in mind next time i hear discussion about pay awards or pension increases being aligned to inflation metrics, or the Bank of England setting policy to target inflation, or whether government budgets are being reduced or increased in real or monetary terms.

I don't like to think that inflation = rising prices because it complicates things, although this is the mainstream idea.

OP is right.

Inflation is an increase in money supply. Deflation is a decrease in the money supply.

Higher prices and inflation are not the same thing. Higher prices are a consequence of inflation. Inflation is a cause of higher prices.

Semantics.

But...

You can have both inflation and falling prices (computers e.g.), or inflation with prices staying the same, or inflation with rising prices (most common).

So, according to this logic...

Bitcoin is inflationary until 2140, not deflationary.


+1 best answer


+1

Shortest answer...

"Give me a dollar and I'll tell you!"

You're just reaching.  In any economic sense, monetary inflation is the topic of discussion.  Price inflation is an economic illusion, and one not discussed by professionals in the field.  Also, he did explicitly ask about how it starts, not the results.  Again, the cause is always and everywhere due to expansion of the monetary base.  Price inflation cannot cause itself. 

The OP didn't actually set the context at all.  He asks "i really didnt EVER heart why and how inflation occurs, starts".  His suggested reason implies he means monetary inflation, but then why ask the question?  So he must mean how does price inflation start, that's the context i read in his suggestion of print money, banks lend, commodities prices go up, product prices go up.  Revisiting, i realise again how daft the question is from someone having done an economics degree, so it must be fishing or trying to find a way of explaining something away that doesn't sit right with him.  

Considering the OP was asking for an economic explaination of inflation; the minor fact that most laymen think of price inflation when the word "inflation" is mentioned is entirely irrelevant.  The OP set the context.  Try and keep up, okay?  We won't be stopping the bus if you fall off again.

Think post above yours covers the important difference between two types that's been ignored thus far, but normally when people say "inflation" they mean price inflation.  Assuming this, then any reference or definition will say inflation is an increase in prices.  Further, monetary inflation does not necessarily lead to inflation, as you put yourself if the relative demand is in balance.  cf Japan engaged in quantitative easing and and printing money for two decades with no inflation to deflation.

While his explaination is flawed, his understanding of what inflation actually is may not be.  A rise in the general price index is a symptom of inflation.  The cause of inflation, and therefore what inflation actually is, is the expansion of the monetary base in excess of the economic/population/general growth rate.  Take your pick.

There is monetary inflation (increase in amount of money) And there is price inflation (increase in prices represented in money terms).
Monetary inflation if it is higher than "goods inflation" usually leads to price inflation.
If the amount of available money increases relative to the amount of goods then the prices will rise.

This can happen in several ways.
- Someone prints big amount of new banknotes and release them into economy.
- Someone creates new money as electronic record (database entries) in big numbers.
- Someone decreases interest rate so new debts flourish.
- In gold era, big amount of gold/silver is discovered and brought in.
- Coins are remelted, content of gold/silver decreased and re-minted in increased amount.
- Quality or amount of goods somehow decreases and amount of money remains the same.

It helps to imagine these causes magnified and think about consequences.
What would happen if everyone finds 10 000 000 USD under his bed tomorrow morning? What would merchants do? What would workers do?
What would happen if 90% of houses/cars/food/computers simply disappear tomorrow? What would you do with your car/food/house? How would you price it (in terms of not-disappeared money)?
What would happen if gold meteorite explodes in Earth atmosphere and large areas are are sprinkled with several thousand tones of gold nuggets?

Inflation does not start from single cause. They are occurring together.

This is *not* inflation.  Inflation is measured in prices rising, not increasing the money supply.  Where has this basic misunderstanding come from to be so widespread?

Inflation starts when whomever controls the printing presses & mints of a given fiat currency decide to fire up those presses & mints to make a few billion/trillion more for themselves and their pals.

How inflation starts ? First inflation of gold was when silver was brought from new world. It not only created starvation in few trade towns, it also destroyed Ottoman empire. At modern times inflation is mostly created by banks, every time when you make use not only bank account but also it is easier to notice when we use cheque. When you give this cheque as a payment to one person, cheque for 100$, you still have this money on your account until this person go to bank with this cheque and this person have this cheque for 100$ in her/his hand. So you both have 100$ dollars (total 200$) made of only one part of 100$. This person can even pay with the same cheque to any one who would accept it.

And this way we have 100% inflation on 100$ until that person monetize this cheque.

Banks makes even bigger mess, making a lot of transactions with no real money.