| For fuck's sake. Where did I say it's a conspiracy? Where did I mention the Jews? Where did I say that I failed macroeconomics? I don't need you to regurgitate the textbooks. I was making a specific point which you did not understand. That is fine. Maybe I gave a bad explanation. But if you don't understand what I'm saying, you can ask questions or at least address something I actually said. Don't just google "Federal Reserve" and copy-paste their website. >However, by Keynesian theory (which is not absolutely proven be right, but has worked pretty well over the past 75 years), inflation (at reasonable levels) is more conductive to investment and consumption and overall economic vitality than deflation, due to people being more inclined to spend and invest money that would lose value just sitting there. This has been disproven. Note how all computer technology experiences deflation - it is a benefit not a detriment. Deflation was a major issue in the days before electronic currency because it meant the mint would have to re-issue new money constantly to retain liquidity. But this is no longer the case. The danger with deflation is that the money supply will become illiquid. Central banks in the past have accidentally induced illiquidity and deflation at the same time by restricting the money supply without issuing smaller currency denominations. This leads to illiquidity which is the worst possible thing. With modern technology it is trivial to keep the money supply liquid in a deflationary environment and so the policy of continual inflation is no longer needed. On top of that, the inflation rates are too high anyway. In an environment of continual inflation, it absolutely matters what order you eat in. Each new supply of money devalues all the money that came before it. It works its way through the economy in a specific order trickling down from the banks. Whoever receives this money first receives it BEFORE the entire money supply has been devalued which gives them an instant wealth increase relative to those they pay the money to. When a bank loans 100k to an entrepreneur, the entrepreneur will make concessions to get that money. The money is worth more to the entrepreneur than to the bank, because until the money reaches the money supply as a whole it has not yet devalued the currency. As soon as it changes hands, the currency slightly inflates. When the entrepreneur pays his staff, it devalues again, and so on until it reaches some theoretical "room temperature" asymptotic point and the inflationary effect is complete. The inflation does not occur when the money is released to the banks from the Fed. It occurs when the money trickles down into the hands of the average person. The people who get to spend this money before it reaches the average person's hands are spending non-inflated money. But the instant it reaches the hands of those people it is inflated money. This is why there is an effect where money is worth more the closer it is to the mint, and people who have jobs that allow them to receive payments closer to the mint* will naturally be more wealthy. This effect happens in every inflationary economy, and the higher the rate of inflation, the bigger the effect. *It should be obvious that when I said mint I actually mean the Federal Reserve issuing electronic currency. |
The concept you are trying to explain is somewhat abstract and difficult. My stab at explaining it:
Let's say that there are $100 in the economy right now. A piece of bacon costs $0.01 dollars.
The government, now fearing deflation, wants to issue another $100 into the system. The banks get access to this additional $100 at a rock bottom interest rate of 1%. They then proceed to use that money to buy out the bacon on the market for $0.01 dollars.
The people selling bacon now realize there is $200 in the market instead of $100, and start selling bacon for the true price of $0.02 dollars a piece. Unfortunately, the bank and their friends were already able to purchase the bacon for $0.01 dollars out of $200, when the market corrected price was $0.01 out of $100.
This correction error happens every time the fed prints more bills, and serves to enrich the people who get central bank money first.