Topic: How does inflation start - page 2. (Read 3226 times)

Ahem

I did, just not by name.  What do you think velocity measures?

Curiously, none of the posts mentioned the elephant in the room of Inflation:  Velocity.

And that's what really matters.  How fast does the money churn over?  If it's all buried under mattresses or in banks it's not out there churning.  When it is out on the street, either as cash checks or credit cards, that's when you will see inflation.

Less money with more velocity can generate inflation, just as more money with a constant velocity.

Yes i know that. I just wanted to make sure that people understand that it is about the change in price, or more specifically the relation of one medium (money) to a product (basket of products).

Inflation, by definition, refers to money. Of course you can generalize the term, but that wouldn't be useful.

Inflation isn't really connected to money. If you buy bread each day, and normally you have to pay 5 apples for a loaf, but gradually over a year you have now to pay 6 apples per loaf. Now the value of the apples compared to loafs have inflated(depreciated) and the value of one loaf compared to the apples has deflated(appreciated).

An increase in money supply does not translate into inflation, because the government is using CPI to track the inflation, and most of the new products produced by increased money supply are not included in CPI, and typically only a small fraction of increased money supply will reach the society, majority of those money stay with bankers

There are many other aspects like cantillon effect, debt based money issuing, FRB to make the whole picture even more complicated, so a simple solution is to not believe anything those books/professors tell you and start a deflative currency and see which one works better

BTW, FRB uses 2 dimensional check book money supply to compare with 1 dimensional base money supply, it is also a trick to prevent people from seeing the truth

Is this serious?

Inflation starts when prices increase year on year.  Inflation existed before central banks, existed when there were gold standards etc.  Expansion of the money supply only to that, an increase of supply.  Supply/Demand indicates increasing supply will lower the value, so in theory prices rise as the people want more of the lower valued currency for their goods and services.  Theory is too complex people or companies don't think like that.  Prices because they can, because there's more money in the system, more credit, more free cash.  Why no significant inflation this time round?  Because the banks haven't lent it out, its gone into their balance sheets.  As government bond yields have been driven down (because they are buying their own back rising the price), surplus money has gone into stock markets, other bonds and oversees assets.

Like Moonshadow's point about increase relative to demand, thats quite succinct.

Exactly what type of master's degree do you have that doesn't require you to understand the basics of your field?

In this climate money is literally Debt... So what comes first? ...Debt, right?

So...

More Debt - > Less Money in Circulation - > As a result, more Money is minted -> thus, Inflation

Just to maintain our economy, more debt has to be accrued, more money has to be put into circulation and the perpetual cycle of inflation continues.

Thus, Bitcoin

Almost always because central authorities at some point in time embrace fiscal indiscipline and get into debt that only leaves the option of increasing money supply

What? Perhaps I don't have a clue about what studying economics means despite taking several college courses, but if you have a masters degree in economics and are asking "how does inflation start" then either you must be looking for an answer beyond most people here, or perhaps you should return the degree.

I suppose you aren't looking for the typical "too much money chasing too few goods response", or perhaps the increasing availability of credit increases the money multiplier, or a more obscure reason like innovation increases the velocity of money.

I think that throughout history the most common cause has been a government trying to print its way out of debt.

Are those the answers you are looking for?

Inflation occurs because of expansion of the monetary base relative to it's demand.  What's really happening is that economic growth increases the demand for money/currency, and central banks respond by over-producing.  A cynical person might call that and excuse for bad behavior.  But the central bank expansion is only part of the picture, the other part is the increase in credit issuance.  Fractional Reserve banking permits banks to increase the monetary base temporarily by the creation of new loans without significant reserves.  Said another way, banks no longer need to have deposits in order to make loans, so the interest that the debtor is paying is "new money".  This creates the pressure to create more currency, because the dollars to cover that interest doesn't yet exist.  This is the currency demand that the central bank will eventually use to justify over-production of currency.  However, not all such currency demand is artificial; some occurs due to very natural causes of a growing population and/or economy.  It's impossible to separate the real from the false.  Since this is an ongoing process, inflation is as well; but there can still be short term deflationary events whenever the economy isn't strong enough to support the credit creation, and thus such new loan originations decline.  Therefore, declining credit can also temporarily contradict central bank expansion.

How does inflation really start, in SIMPLE few words (if you cant explain it in simple words, you dont understand it fully - albert einstein).

I got masters degree in economics but i really didnt EVER heart why and how inflation occurs, starts etc.

As far as i know, the popular view is that inflation is caused by the expansion of money supply (your print more money, the goods cost more). I think it is true, even though there are oponent views... but i didnt study them, so i dont know, and i will believe the first one.

So hows does inflation start... does anybody know?

Is it because: Central banks print more money, the money "finds its way" to the banks, banks invest it into several fields, including commodities which drives the price of commodities higher? (the more money you push into something, the more it costs, look at bitcoin :-) ). So producers of for example some pies have to pay more for the commodities (wheat for example). And this price increase is transfered onto the consumers, via higher prices....

This is just a quick thought of mine made in few seconds, without any study, its probably wrong :-).

So how does inflation really start, juast with few sentences please, no stupid academic shit.