Can inflation actually be fixed? Is there any hope? Or will prices just gradually keep increasing?
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I think it’s important to recognize what exactly is trying to be fixed here.
Inflation is something the central banks can fix with the snap of a finger. All they have to do is increase the prime borrowing rates to double their current rates and you’ll see pretty rampant deflation.
But slight deflation is almost worse than high inflation. When you get deflation it means there is overall less money circulating around the economy. It means assets are worth less but it also means that less money is going to change hands because there’s less money to be spent.
In the case of Japan they had a “lost decade” caused by deflation. Japan was the centre of the world’s tech and because of this the world’s most powerful country. But they kept all of their secrets under lock and key and for the most part, they were the world’s largest producer of advanced semiconductors. But then the US promised trade action against Japan if it didn’t tell them their filthy little secrets. And as a result of this, China is the world’s largest producer of semiconductors. Japan’s economy deflated for a decade and they haven’t quite recovered yet.
So what the feds are trying to do is ease up the prime borrowing rate so as to not trigger deflation. They want inflation to continue to go up at a slower rate. Because you gain money you gain assets that will gain in value (with inflation). And they want it so that your life doesn’t change over your entire life, just one steady thing from beginning to end. It really sucks for people who aren’t accruing assets over their life though. But with the amount of inflation we have now, I had offers on my used car for more than what I paid for it 5 years ago.
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