Simple Introduction to Inflation

Introduction to Inflation

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[Iambecome]

How does increasing interest rates help reduce inflation? That bit isn't explained...

[imakethingsgoBOOM]

By doing that they controll the money supply. It helps them aquire money which they will take out of circulation, so that the rest of the currency will regain some of its lost value. When the value is back up, people spend less for products and are more willing to buy them.

[PAZ0619]

"the payback rate" also gives incentives to people to save money, knowing that their money would go up in value even discounting inflation. The increased buying power of money combines with the increased savings facilitates investments and sustainable spending.

[Iambecome]

@sspiega Thank you for the reply

[sspiega]

@Iambecome All money that enters into a country's economy, in today's world, enters by means of the loan process. ERGO: What is loaned out, must be paid back. If those loans are being made at an increased rate, so to must the payback rate increase. Or else there will be too much currency remaining in the overall money supply, which causes said currency to lose value. The "interest rate" is really a fancy-shmancy way of saying "payback rate".

[Houshalter]

@CleanUpCongress, well in fairness as long as the money is payed off at the rate it goes out, then it doesn't matter.

[CleanUpCongress]

@Houshalter - No, the point is that the Federal Reserve can manipulate interest rates, since they can counterfeit money, loan it out and earn interest on it. Insane! It costs them nothing to print up this unearned money, so they can loan it (to the government or to other banks) at unnaturally low rates. When people can borrow money cheaply, they feel that they can "afford" more, which drives up prices. The value of our paper dollar tanks, nat'l and consumer debt goes up & the economy's ruined.

[Houshalter]

@SaveCongress, Whats the point? You can't honestly believe handing out money for free in the hopes it will get paid back is a good thing? Or maybe it is to get extra money out of circulation with interest rates? I dunno, it sounds fishy.

[yuenj01]

how does increasing interest rate will slow down the growth of the government? also if you print more money, it decreases the value of the currency, how does it help growth of the economics?

[SaveCongress]

Crobio19 has it about right.

Inflation is NOT rising prices; it is an increase in the amount of currency in circulation.

The Federal Reserve ("not federal, no reserves") prints money out of thin air & loans it out at very low interest rates, enticing people (& govts) to borrow much more than they otherwise could have. As people have easy access to more dollars, sellers can raise prices. Rising prices are a RESULT of inflating the money supply.

Help abolish the Fed.

Google "save congress."

[rubindr]

The interest is price of government issued bonds and as such follows the rules of supply and demand. the fed doesn't control it just targets an interest rate. for example the current target is between 0-.25 what the fed does is buy back government bonds from the private sector this lowers the interest rate and puts money into the hand of banks where they can lend it. when it wants to reduce the interest rate it sells back these bonds increasing r and taking money out of the market place.