brit2006 Posted April 7, 2006 Report Share Posted April 7, 2006 A quote from Ayn Rand: Justice does exist in the world, whether people choose to practice it or not. The men of ability are being avenged. The avenger is reality. Its weapon is slow, silent, invisible, and men perceive it only by its consequences - by the gutted ruins and the moans of agony it leaves in its wake. The name of the weapon is: *inflation*. If all prices have risen by 2% (including my nominal wage), then my real wage has stayed the same. Whats the problem? Quote Link to comment Share on other sites More sharing options...
softwareNerd Posted April 7, 2006 Report Share Posted April 7, 2006 I did even better than you did. The extra money the government printed was paid to me; it's money I would never have otherwise got. My nominal income went up by 30%. What's the problem? Quote Link to comment Share on other sites More sharing options...
aequalsa Posted April 7, 2006 Report Share Posted April 7, 2006 A quote from Ayn Rand: If all prices have risen by 2% (including my nominal wage), then my real wage has stayed the same. Whats the problem? The main problem I see is that inflation is essentially fraudulent in nature. If 10 people each have 10 dollars and 10 apples to trade with, each apple costs $1. Now say we introduce 100 more dollars(10 each) Now the apples are worth .5 dollars. No problem so far. But what happens in actuality is, 1 of the 10 people is the nationalized bank or the government and they print the extra $100 and get to spend it first. The other 9 accept the money as if each dollar were worth 1 apple, but guess what? The dollar is now worth .5 apples. now the 9 other people can buy back 1/2 the apples they started with and the bank/government can start the cycle again. Simply put its an insidious form of taxation. Incidentally, I'm fairly certain that that 2% figure they put out(in the US) is nonsense. I would guess that the actual number is closer to 11%. Quote Link to comment Share on other sites More sharing options...
Scott_Connery Posted April 7, 2006 Report Share Posted April 7, 2006 A quote from Ayn Rand: If all prices have risen by 2% (including my nominal wage), then my real wage has stayed the same. Whats the problem? The problem is thatp rices and wages never rise uniformly. Furthermore, people with savings simply see their money trickle (or stream as the case may be) away. Quote Link to comment Share on other sites More sharing options...
Hal Posted April 7, 2006 Report Share Posted April 7, 2006 (edited) The main problem I see is that inflation is essentially fraudulent in nature. If 10 people each have 10 dollars and 10 apples to trade with, each apple costs $1. Now say we introduce 100 more dollars(10 each) Now the apples are worth .5 dollars. No problem so far. But what happens in actuality is, 1 of the 10 people is the nationalized bank or the government and they print the extra $100 and get to spend it first. My knowledge of macroeconomics is limited so someone who knows more is free to correct me, but I dont think that the existence of inflation is caused by nationalized banks and/or fiat currency. If people tend to be saving money then youre going to have deflation, and if they arent saving much, then youre going to have inflastion. This would continue to happen in a system with fully private banking, perhaps moreso (some would argue) because you wouldnt have a central bank which was able to adjust the money supply to compensate, edit: also, if you had more than one bank printing money, then youd have 'inflation' in the sense of one bank's currency losing value against another - your wealth could decrease overnight if most of what you held were notes printed by bank X, while those of banks Y and Z increased in value (compare to loss/gain of money caused by exchange rate fluctuation today - youre essentially introducing the economics of foreign currency trading into your domestic market). Edited April 7, 2006 by Hal Quote Link to comment Share on other sites More sharing options...
softwareNerd Posted April 7, 2006 Report Share Posted April 7, 2006 Saving does not mean a withdrawal of money from the economy. Usually, it means giving the money to someone else; with a promise that they will return it later. Quote Link to comment Share on other sites More sharing options...
Capitalism Forever Posted April 7, 2006 Report Share Posted April 7, 2006 If all prices have risen by 2% (including my nominal wage), then my real wage has stayed the same. Whats the problem? There are a number of problems, the smaller ones of which are: The money you keep in your wallet is now worth 2% less. Price stickers have to be updated regularly for inflation, which adds to the cost of running a business. The figures produced by accounting departments will be distorted. Interest rates will have to be updated for the changes in inflation; long-term loans will become risky if the interest rate is unpredictable, which will result in lost deals. Obviously, the greater and the more volatile the inflation rate, the more severe the above problems will be. With a stable 2% inflation rate, they don't make much difference. Now, if the value of a currency unit is defined in terms of a stable-valued commodity, such as gold, the inflation rate will simply be the inverse of the change in that commodity's value. This prevents the inflation rate from being chronically high or unpredictable. But if the value of currency can be manipulated by the Fed chairman at his whim, you have no such assurance. Fortunately, the U.S. Federal Reserve and most other central banks nowadays consider it their main goal to ensure price stability--but if the government chose so, it could still bully them into increasing the money supply--creating inflation--which they accomplish by buying Treasury bonds. And this scenario is the greatest problem related to inflation. What happens is basically that the government affects a redistribution of wealth from creditors to debtors--with the government being the biggest of all debtors. This is how it works: The government borrows money by issuing bonds--but, unlike a productive corporation, the government does not use the money to buy productive assets that will yield enough wealth to repay the loan with interest. What the government does instead is: it spends the money now on buying votes, and when the bond matures, it repays it from tax revenue--or from a new bond issue. And when the government can neither raise taxes nor find enough bond buyers, it will make the Fed buy the bonds, which will increase the money supply, which will in turn reduce the value of a dollar--and poof, every $100 of government debt is suddenly worth only $98 in yesterday's money. For every 100 bars of chocolate that the government owed your children, it now owes only 98. Quote Link to comment Share on other sites More sharing options...
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