Quote:
Originally Posted by doobnVA
Wrong.
Inflation is caused by devaluation of the dollar. This happens when the Fed decides to print more money. More money means each dollar has a diminished value.
Remember how your mom always told you that money doesn't grow on trees? Well she was right. You can't just pump more currency into circulation without diminishing it's value. That's why people are so worried about inflation right now. The dollar is already down in value, and they want to print more freakin' money. It doesn't make sense.
Yes, inflation is really that bad for the average American. Just because prices go up, doesn't mean WAGES are going to go up. Hell, minimum wage was stagnant for damn near ten years but prices were steadily climbing, weren't they?
Let's say you currently make $10 per hour. A gallon of milk is about $4. Let's say inflation drives prices up to 5x what they are currently. A gallon of milk would now cost $20, but you're still only making $10 per hour. That means you have to work 2 full hours just to buy ONE gallon of milk. Essentially everything will cost you 5x what it currently does, which means you really need to earn $50 per hour to maintain your standard of living. In a recession or depression, NOBODY is going to pay you $50 per hour, because even employers are subject to inflated prices so it costs them 5x more to operate.
Population does not affect inflation in the way you have described. A double in population would not mean inflation would be zero, it would remain the same or may even inflate more due to economic stress from increased consumption.
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You are wrong - simply printing money does not devalue the currency. PERIOD. You are melding two concepts.
There are two things that will affect the value of the dollar - the supply of dollars and the demand for dollars. It is possible to print more dollars and have the value of the dollar increase, remain unchanged, or decrease depending on the demand for those dollars.
Printing money when the demand remains unchanged or is decreasing will cause inflation ceteris paribus. Ceteris paribus - Printing money when the demand for dollars is increasing will cause the 1. value of the dollar to increase, 2. stay the same or 3. decrease depending on whether 1. not enough money is printed to satisfy demand 2. the exact amount of money is printed as is demanded 3. more money is printed then the demanded
Money supply and inflation / deflation are TWO seperate concepts.
"Because money is used in virtually all economic transactions, it has a powerful effect on economic activity. An increase in the supply of money works both through lowering
interest rates, which spurs
investment, and through putting more money in the hands of consumers, making them feel wealthier, and thus stimulating spending. Business firms respond to increased sales by ordering more raw materials and increasing production. The spread of business activity increases the demand for labor and raises the demand for capital goods. In a buoyant economy,
stock market prices rise and firms issue equity and debt. If the money supply continues to expand, prices begin to rise, especially if output growth reaches capacity limits. As the public begins to expect
inflation, lenders insist on higher interest rates to offset an expected decline in purchasing power over the life of their loans."