I’ve been wandering the web, finding resources about macro economics. I have always thought inflation is bad. After all, who wants prices to rise? So I looked on Wikipedia. What I found confirmed developing discontent.
“Inflation’s effects on an economy are various and can be simultaneously positive and negative. Negative effects of inflation include a decrease in the real value of money and other monetary items over time, uncertainty over future inflation may discourage investment and savings, and high inflation may lead to shortages of goods if consumers begin hoarding out of concern that prices will increase in the future. Positive effects include ensuring central banks can adjust nominal interest rates (intended to mitigate recessions), and encouraging investment in non-monetary capital projects.”
The Bad of inflation – Got it. Prices go up. Value of my money goes down. Uncertainty increases. Discouraged investment. Shortage of goods.
The Good of inflation – What?! The only advantage listed is that central banks (a.k.a. Federal Reserve) can diddle with rates. You mean we ~desire~ to hurt all the little guys with an inflation rate simply so the bank has some headroom to manipulate what the corporations do?
Lowering interest rates is what the US Fed has been doing for many months with loose monetary policy. Yesterday, all the rates were already near zero, so what did they do? They sold off short notes, preferentially bought long term, driving up long-term prices, dropping long-term return rates. Got that? Read more here about Operation Twist.
The idea is to encourage entities (corporations) to borrow money only for long-term infrastructure investments. Corporations are very skittish about the future, unwilling to invest long term because they’re all scared of the unsure future landscape based on Obama’s attitudes and policies (Tax the rich! No corporate jets! etc).
Then the Fed is decides that they’re smarter than corporations to decide what corporations should be doing. In politico-speak, corporations should be “incentivized” to do what the Fed wants. The Fed is trying to push corporations to to what they don’t want to do.
My thoughts? 1) This is called the “free market”? Sheesh… 2) I want to choose to operate life and business without debt, so I am less easily manipulated.