Why higher wages do not create price inflation

It is increased spending due to credit expansion that is causing price inflation in Australia. Not the mining boom or an economy operating at near "full capacity/employment" etc.

A response to an article that appeared in the Financial Review, 15th Sept 2010, "Wage Risks in Economy Test RBA."

For more resources visit:

www.mises.org
www.lewrockwell.com

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[chriswhited71]

quick question. I can see where deflation would be advantagous for more typical consumer goods... food,stereos,computers, clothes.... but what happens when someone buys a home at a certain interest percentage. If wages lower then doesn't that put the home owner (prime example) is a hole? The mirror image of inflation erasing government debt. Your thoughts?

[AussieAustrianBlog]

@chriswhited71 You raise a valid point that warrants a much greater response than i can provide here, but view Jorg Guido Hulsmann's lectures called "the economics of deflation" on youtube as he addresses it. I believe his 2009 lecture is best. Put simply, those with the highest debts will be worse off and those who have more equity will be better off. Different people win/lose in inflation and deflation. Those who were more financially prudent will be better off as well as fixed income people.

[AussieAustrianBlog]

@chriswhited71 And yes, government will be in more trouble paying debts, which is why they shouldn't spend as much as they do, hence why we know they'll always opt to inflate. Deflation (falling money supply) and the resulting price deflation basically helps liquidate the malinvestments and reallocate resources. Basically ridding the economy of a disease (i'm being very simplistic here). I'll hope to post some videos on this topic. But checkout Hulsmann's lectures on deflation - should help alot

[AustralianGoldBuyer]

Inflation the hidden tax.....The greatest theft in the 20th century. Keep it up Aussie !

[AussieAustrianBlog]

@AustralianGoldBuyer Thanks for the support. Inflation is definately a pet peeve of mine!

[AussieAustrianBlog]

@AUSM92 Unsure. Best contact the RBA direct.

[58robbo]

@chriswhited71 i think the resulting culture will be one very sceptical of debt. this might be stiffling by our current economic standards but would result in a more sustainable economic growth. i'm in a position now where i know that if i wait until next year, homes will be cheaper (florida,usa) and i might be earning less. that isn't necessarily stopping me from buying now i just have to lower my sights a little.

[SuperBob478]

@chriswhited71

Well, ending ought to "put you in the hole." That's the bargain. You want stuff now, they lender defers for a payment later. Also, if the money is becoming more valuable (deflation), the interest rates can be lower, because they don't have to compensate for the inflationary erosion of money value. This of course assumes market-determined rates. Walter Block has some good stuff explaining how interest rates are just bids for future money, you might check that out.

[KingLeon1daz]

Keep up the good work, Broseph

[capncrunch93able]

@chriswhited71 Michael Hudson is always worth taking a look at what he's saying:

Michael Hudson explains current crisis - El Economista habla con M. Hudson

watch?v=Ocf8olat7kc