What The Fucken Fucke???


I am no economist, but isn’t this completely backwards when inflation is too low, as it probably is now?

Lower inflation gives consumers more spending power, which boosts growth. It also gives the Federal Reserve more flexibilty to keep interest rates low and take other steps to boost the economy.

Comments

  1. says

    You can’t really know either way without understanding wage and salary increases. The real issue is fixed vs. non-fixed incomes and creditors vs. borrowers.

    Articles like that are why we can’t have nice things….

  2. felicis says

    Well – it depends… If you have a lot of debt, low inflation hurts more than it helps. For example, my mortgage is at 5.625%, if inflation ever climbed to 5.626% the interest rate would be *effectively* negative (not that *that’s* likely to happen anytime in the near future). If I had no debt though, a low inflation rate would make my savings seem *better* (1.64% CD + 1% inflation means I’m making 0.64% in ‘real dollars’, but at 3% I’m only losing value a little slower than I would by keeping it under my mattress.)

    While low inflation means that dollar now stretches a ways, it also means I really ought to put that dollar to paying down debt before buying something – especially since the price of that thing isn’t going to go up much if I wait a year. High inflation would act to push me to buy the thing *now* and slow down my debt – of course, this also assumes that I expect my pay to go up to match inflation, which is becoming less and less likely…

    Note that – low inflation *inhibits* spending, which does the opposite of ‘boost growth’…

  3. raymoscow says

    Creditors (banks and other big financial institutions) generally hate inflation, even when it would be an overall benefit to the economy (as it would be now). What’s good for them is not necessarily good for the rest of us.

    Most people who write about such things either work for banks or take their information from people who do.

  4. ed says

    @ #3 Raymoscow – you got it right. Banks hate inflation, as it erodes their profits on loans. But don’t cry for them. They have the game rigged, so they end up winning coming and going.

  5. mandas says

    Low inflation can be both good and bad.
    The bad side is that, if it is too low, or if you have stag-flation (negative inflation), there is no incentive to buy. If the price of goods is falling, then you will obviously defer your purchase until the price of the goods is lower. Similarly, with low infation, if you are receiving a return on your investments or are experience real wage increases which exceed the rate of inflation, then once again you have no incentive to buy.

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