Inflation is traditionally a symptom that the economy is running too well: Businesses are making more money, they are accumulating cash and so are their employees.
Capitalism being as relentlessly exploitative as it is, raises prices on everything that Businesses and employees buy, because they know the businesses and employees can afford it. This is price inflation.
But that can trigger an “arms race” or a self perpetuating sprial of rising prices. In the worst cases of this, there was hyperinflation, where you had to spend all your money each day, because the next day, your cash was practically worthless because prices rose much higher every day.
So to try and keep inflation from getting out of hand, central banks raise interest rates whenever they detect higher prices to raise the cost of borrowing for businesses and people, so they have less cash in hand, and can’t spend recklessly, or be charged recklessly higher prices by capitalists because they just don’t have the extra cash to pay higher prices.
Now all of the above is just if things are normal, and no extraordinary disasters happen such as a pandemic, or an orangutang starting wars that cut off 25% of the world’s oil supply, or suddenly deporting a large part of the blue collar labor force.
These things can lead to instability and unpredictable changes as the economy adjusts, and may take some time to find solutions to reach an equilibrium.
or be charged recklessly higher prices by capitalists because they just don’t have the extra cash to pay higher prices
This must be the answer to the question I was asking another commenter. They have to lower prices because people won’t have the cash. I honestly thought people didn’t already have the cash though.
They have to lower prices because people won’t have the cash.
The Fed doesn’t want deflation either, i.e. for prices to decrease rather than increase. Deflation could also set off a bad spiral: why by a toaster today for $30, when you’re confident it will be $25 in a week, or $20 in another week? When people generally expect prices to go down, they refrain from buying things, which forces sellers to offer even lower prices, etc.
So the Fed aims for 2% inflation, where prices will increase each year but only relatively slowly.
They dont. Lots of people are struggling with higher prices. Mostly, the price rises are due to other events, like the war, like the tariffs. Putting the rates up doesn’t help that as much as when the economy is overheating, from going ‘too well’. However, they don’t have many levers to pull and interest rates is one big crude one.
They want more people to be struggling, more people to forego buying things and that makes some people even lose their jobs. They then spend even less. However, it does cause companies to reduce prices to compete, or go bust from lack of sales.
Higher interest rates affect Americans less than in other countries where their mortgages are actually linked to the rate. Americans mortgages tend to be fixed for the term. So when rates go up, people have less money, as well as businesses.
Businesses are making more money, they are accumulating cash and so are their employees.
This seems… dubious. Where is the money coming from? Is it a closed system? My understanding is the government typically is putting money into the system through various mechanisms, much of which is giving money to rich people and their businesses.
Is the problem that the businesses have too much money? Because taxing them seems like a better solution.
Money can be counted multiple times because it can be spent multiple times. The parent commenter did commit what I believe to be somewhat of a misnomer by calling it “accumulation”, but a business that is earning more and spending more will contribute to an economy that feels richer, even if the amount of actual money in circulation has not increased.
Think of a simple circular economy situation. There is one coin and I have it. I grow bananas and you grow mangoes. I trade you the coin for a mango. Tomorrow, you trade the coin back to me for a bunch of bananas. Money is fungible so we don’t actually know or care that it’s the same coin, just that it’s a coin. The next day, I trade the coin back to you for another mango. We do this 100 times. Assume we are not trading for fun and actually consume the fruit. Even though there was only ever one coin, you earned it 100 times by selling 100 mangoes, and I earned it 100 times by selling 100 bananas. So you earned 100 coins and spent 100 coins, while I also earned 100 coins and spent 100 coins. So we collectively feel like we’ve earned and spent a total of 200 coins between us, but yet only one physical coin existed.
You might notice that people’s income can theoretically increase without bound as long as there is still stuff to trade for, even with a finite number of coins.
In contrast, suppose instead of trading the coin back and forth for fruit, I decided to hoard the coin on the 50th day and just eat the bananas myself. I’d have earned 51 coins and spent 50 coins. You will have earned 50 coins and spent 50 coins. My act of hoarding the coin has halved both our incomes because the trading stopped. Yet the number of coins in circulation is still only one.
so they have less cash in hand, and can’t spend recklessly, or be charged recklessly higher prices by capitalists because they just don’t have the extra cash to pay higher prices.
Get fucked, Sam Altman. Hopefully this finally pops the AI bubble and all the AI CEOs lose everything
Let me try:
Inflation is traditionally a symptom that the economy is running too well: Businesses are making more money, they are accumulating cash and so are their employees.
Capitalism being as relentlessly exploitative as it is, raises prices on everything that Businesses and employees buy, because they know the businesses and employees can afford it. This is price inflation.
But that can trigger an “arms race” or a self perpetuating sprial of rising prices. In the worst cases of this, there was hyperinflation, where you had to spend all your money each day, because the next day, your cash was practically worthless because prices rose much higher every day.
So to try and keep inflation from getting out of hand, central banks raise interest rates whenever they detect higher prices to raise the cost of borrowing for businesses and people, so they have less cash in hand, and can’t spend recklessly, or be charged recklessly higher prices by capitalists because they just don’t have the extra cash to pay higher prices.
Now all of the above is just if things are normal, and no extraordinary disasters happen such as a pandemic, or an orangutang starting wars that cut off 25% of the world’s oil supply, or suddenly deporting a large part of the blue collar labor force.
These things can lead to instability and unpredictable changes as the economy adjusts, and may take some time to find solutions to reach an equilibrium.
This must be the answer to the question I was asking another commenter. They have to lower prices because people won’t have the cash. I honestly thought people didn’t already have the cash though.
The Fed doesn’t want deflation either, i.e. for prices to decrease rather than increase. Deflation could also set off a bad spiral: why by a toaster today for $30, when you’re confident it will be $25 in a week, or $20 in another week? When people generally expect prices to go down, they refrain from buying things, which forces sellers to offer even lower prices, etc.
So the Fed aims for 2% inflation, where prices will increase each year but only relatively slowly.
They dont. Lots of people are struggling with higher prices. Mostly, the price rises are due to other events, like the war, like the tariffs. Putting the rates up doesn’t help that as much as when the economy is overheating, from going ‘too well’. However, they don’t have many levers to pull and interest rates is one big crude one.
They want more people to be struggling, more people to forego buying things and that makes some people even lose their jobs. They then spend even less. However, it does cause companies to reduce prices to compete, or go bust from lack of sales.
Higher interest rates affect Americans less than in other countries where their mortgages are actually linked to the rate. Americans mortgages tend to be fixed for the term. So when rates go up, people have less money, as well as businesses.
This seems… dubious. Where is the money coming from? Is it a closed system? My understanding is the government typically is putting money into the system through various mechanisms, much of which is giving money to rich people and their businesses.
Is the problem that the businesses have too much money? Because taxing them seems like a better solution.
Money can be counted multiple times because it can be spent multiple times. The parent commenter did commit what I believe to be somewhat of a misnomer by calling it “accumulation”, but a business that is earning more and spending more will contribute to an economy that feels richer, even if the amount of actual money in circulation has not increased.
Think of a simple circular economy situation. There is one coin and I have it. I grow bananas and you grow mangoes. I trade you the coin for a mango. Tomorrow, you trade the coin back to me for a bunch of bananas. Money is fungible so we don’t actually know or care that it’s the same coin, just that it’s a coin. The next day, I trade the coin back to you for another mango. We do this 100 times. Assume we are not trading for fun and actually consume the fruit. Even though there was only ever one coin, you earned it 100 times by selling 100 mangoes, and I earned it 100 times by selling 100 bananas. So you earned 100 coins and spent 100 coins, while I also earned 100 coins and spent 100 coins. So we collectively feel like we’ve earned and spent a total of 200 coins between us, but yet only one physical coin existed.
You might notice that people’s income can theoretically increase without bound as long as there is still stuff to trade for, even with a finite number of coins.
In contrast, suppose instead of trading the coin back and forth for fruit, I decided to hoard the coin on the 50th day and just eat the bananas myself. I’d have earned 51 coins and spent 50 coins. You will have earned 50 coins and spent 50 coins. My act of hoarding the coin has halved both our incomes because the trading stopped. Yet the number of coins in circulation is still only one.
Get fucked, Sam Altman. Hopefully this finally pops the AI bubble and all the AI CEOs lose everything