Too little inflation?

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MikeMiller69's picture
MikeMiller69
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Joined: Sep 29 2008
Posts: 6
Too little inflation?

Chris,

Thanks so much for making your videos available for all.  I'm a beginner at learning these basic concepts you explain, and I have a question about inflation.  In Chapter 16, you state: "inflation is a matter of active policy. Too little, and our current banking system risks failure. Too much, and the majority of people lose their savings.."

Why is too little a bad thing? Is it inherently a bad thing, or only because we're using fiat currency and fractional reserve banking system?  i.e. if we were on gold standard and did not employ fractional reserve banking, then zero inflation would be OK?

Thanks for your help and patience. :)

-Mike

gsti's picture
gsti
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Posts: 60
0 Infaltion is nirvana ;) it
0 Infaltion is nirvana ;) it is the dream of many economists
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brjohnson789
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Posts: 52
re: Too little inflation?
[quote=MikeMiller69]

Chris,

Thanks so much for making your videos available for all.  I'm a beginner at learning these basic concepts you explain, and I have a question about inflation.  In Chapter 16, you state: "inflation is a matter of active policy. Too little, and our current banking system risks failure. Too much, and the majority of people lose their savings.."

Why is too little a bad thing? Is it inherently a bad thing, or only because we're using fiat currency and fractional reserve banking system?  i.e. if we were on gold standard and did not employ fractional reserve banking, then zero inflation would be OK?
[/quote]

Hello,

  When there is 'inflation' then savers are punished, when there's deflation the borrowers are punished.  But because of how the money system is setup so that money is created from the issuance of debt, debts contantly need to be created in order to create more money to pay off (with interest) the existing loans.  If more debt (and money) is not created loans are defaulted, and we have deflation where not only are the borrowers punished, but the bank owners are punished as they have to recognize some losses.  So, the powers that be would rather save the borrowers and banks from punishment by ensuring there is enough inflation.  The pain to the savers needs to be small enough though so they don't revolt; its a fine line. 

MikeMiller69's picture
MikeMiller69
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Posts: 6
So if our currently was
So if our currently was hard-backed by gold/silver/etc and there was no central bank, than zero inflation would be OK?
Liberator's picture
Liberator
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Joined: Oct 13 2008
Posts: 22
Re: So if our currently was

Yes, MikeMiller69, that's my understanding. Chris is speaking always about the specific US method of money "creation", using debt. In any other system zero inflation would be ideal - and remember his Chapter 10, showing that until the 20th Century, there was zero inflation here except during the times of government wars.

Notable, though: what's needed is that no excess money is created, not that a specific method of control be used to achieve that. If government were trustworthy, then it could produce almost exactly that from a nationalized central bank ("almost", because the predictions are too complex to make it always exact) - but the fact is that governments can never be trusted to do any such thing. Once cut them loose them from the control of gold, and they are off into inflation-land - because always, the maker of funny-money always gets first use of it, before the excess quantity gets noticed by the rest of the market.

 

 

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