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Re: Dr. Doom’s prediction U.S. will suffer Zimbabwe-like …

Home Forums DISCUSS Current News & Events Dr. Doom’s prediction U.S. will suffer Zimbabwe-like hyperinflation fuel for gold bulls? Re: Dr. Doom’s prediction U.S. will suffer Zimbabwe-like …

  • Sat, May 30, 2009 - 03:04pm

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    Re: Dr. Doom’s prediction U.S. will suffer Zimbabwe-like …

mikek31

[quote]The rise in prices of goods and services is a consequence of inflation.  The other definition is confusing cause with effect.  Rising prices is just rising prices.  But do prices go up (or down) as a result of demand, or monetary policy?  That is the question.  [/quote]

I think you have it precisely backward.  According to definitions I have been able to find:

http://en.wikipedia.org/wiki/Inflation

[quote]In economics, inflation is a rise in the general level of prices of goods and services in an economy over a period of time.[1] When the general price level rises, each unit of the functional currency buys fewer goods and services; consequently, inflation is a decline in the real value of money—a loss of purchasing power in the internal medium of exchange which is also the monetary unit of account in an economy. [/quote]

http://www.investorwords.com/2452/inflation.html

[quote]The overall general upward price movement of goods and services in an economy, usually as measured by the Consumer Price Index and the Producer Price Index. Over time, as the cost of goods and services increase, the value of a dollar is going to fall because a person won’t be able to purchase as much with that dollar as he/she previously could. [/quote]

http://www.investorglossary.com/inflation.htm

[quote]Inflation is a broad increase in prices. In practical terms, inflation means goods and services are being valued as more desirable than money. [/quote]

I was somewhat confused because I didn’t take into account the corollary of a rise in prices, that is the loss of relative value of the currency or medium of exchange.  Cost-push and demand-pull are descriptive terms of two causes of inflation, but I don’t think they are exclusive because a relative decrease in the value of money is effectively the same thing as an increase in price.  The relationship between prices and value of money is what defines inflation and/or deflation.  Your examples, demand and monetary policy, may cause that relationship to change, but they are not themselves inflation or deflation.

This might all seem a bit picky, but for me understanding precisely what the almost overwhelming number of economic terms mean is key to understanding how the economy works.  Confusion of terms can be used by those with political agendas to twist the debate, and I like to be aware of when someone is trying to manipulate me.