Quote:
Originally posted by MarkTiarra
I appreciate the cursory lesson. Maybe you can answer a question I've had for a long time then:
If the goverment prints more money than usual and puts it in circulation, why does this decrease the value of the dollar? To me it would seem to come down to human psychology again because the answer I always hear is that prices go up. Well prices go up because people get greedy and if there is more out there they know they can ask for more and of course prices rising is a domino effect thing.
I can see your point on taxes/tarrifs having a great impact on the economy and that not being based on psychology in any way (unless one considers the psychology of the people running the goverment who make the decisions, but I digress).
So anyway, interesting points. That's what I was looking for, some intelligent discourse.
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In terms of inflation this its actually a game of catch up. The government benefits most because it can print money and buy whatever it wants with that money, the added "cash" in the economy isn't felt in its entirety for months. Thus, if there are say $100,000,000 in cash circulation (hypothetical), and the government prints another $1million, prices will eventually reflect the extra $1million in circulation (consumer price index or CPI), however this equilibrium wont occur for months. Thus, since the government HAS the extra $1million and then spends it, its basically saying "fuck you" to everyone who has a $1 bill in their pocket because its lessening the value of it, in this instance, by 1%.
If you then take a look at debts or investment, if someone loans you $15,000 for a car loan in 2003, and inflation is 1%, then every year that you pay back your loan, you're paying it back with money that is worth less than when it was given to you. So inflation helps people with debt, but hurts investors or people who loan money.
Hope that helps.