Can inflation actually be fixed? Is there any hope? Or will prices just gradually keep increasing?
In: 45
Let’s call all the money paid in wages as “X”.
A percent of X is spent on good/services and a percent of X is saved.
Thus the amount of money paid in wages “X” actually decreases due to the amount saved.
This would be a shrinking economy. Not good.
While amazing complicated. In general, the loaning of money to banks, businesses, and people keeps X increasing (even w/ a percent being saved).
Lower interest rates cause more loans which increase X faster. Higher interest rates decrease loans which increases X slower.
If the amount of goods/services don’t increase proportionally w/ X you get inflation or deflation.
Inflation is necessary to constantly increase X.
This is why direct payments (stimulus) to people (across the world) w/ out people creating more goods/services led to horrible inflation we are experiencing now.
There was in increase in X.
There was a decrease in goods/services.
Both, on their own, cause inflation – together it was a double whammy.
In the US we have relied on low rates to increase X since Bush II.
To control the double whammy, we have raised interest rates to slow the increase in X.
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