Inflation is "needed" to prevent recession?

The media has recently been repeating that there is a trade-off between trying to lower inflation and preventing a recession.
Does this trade-off actually exist and is this a legitimate claim? Or is this yet another example of politically biased economics?

Maybe anyone here would like to try to explain why they think trying to reduce inflation might cause a recession?
How does printing more money prevent a recession?

Otherwise, is this just a lie that the media is propagating?


I am going to guess that some people think that higher government spending will help avoid a recession. But does this still apply when the government has been chronically overspending for many years? That sounds like just continuing to kick the can down the road in an unsustainable way. You can't go overspending forever. That is not economically healthy. If this is really the case, then it is time to face any recession now. The longer the delay, the worse it will be.

Furthermore, government printing money only moves purchasing power away from consumers to government. How can this really increase demand in the economy? Anyone care to take a try at explaining that?

 

Fed waited too long to act and it is too late. Inflation will slow, but prices will not go back down and a recession is close to inevitable

 

Couldn't the Fed compensate for that by having zero percent inflation for the next few years?
Just don't expand the money supply at all.

(Oops, then who would continue to loan the US Treasury money to spend? intentional sarcasm)

 

Sure. I think the problem is that people have an inaccurate understanding of what inflation is. The misinformation from government and economists can be thanked for that. Inflation is a devaluation of the currency by government increasing the money supply. Add more dollars and the value of the existing dollars declines because there has been no wealth creation involved. It is permanent and can only be addressed by government living within its means.

The price increases are caused to a degree by the devaluation but primarily by supply and demand. Government deals with this by stifling demand with higher interest rates. It does more harm than good because supply and demand will correct themselves in time. In the meantime the stifled demand hurts the economy. Government feels it needs to do something for political reasons. If they would stick to economics, they would work on reduced spending which would help enormously.

When you put inflation together with high prices and call the combination inflation, economists and government can do things in the hope of correcting high prices without actually addressing the problem or doing something that can be effective. The reality is that government and only government can stop inflation and only deflation can reverse inflation. On the other hand government can't fix a weak economy because it doesn't control supply and demand and doesn't create wealth. In fact, it only spends wealth. All they can do is inject negative activity in the hope of getting some votes for it. This has been true for many decades and we continue to make the same mistakes over and over. Why? Because government makes political decisions, not economic ones.

The only thing you and I can do is adapt to what government does. We certainly can't change it.

 

No. If government stops inflating the money supply it will stop inflation, not reverse it. When government spends money it doesn't have it all ends up causing inflation. The government borrows and then monetizes the debt with inflation. The FED monetized 800 billion in debt just in the last few months. Debt (a temporary liability) goes down and inflation (basically a permanent asset devaluation) rises. It is a lose, lose proposition.

The only thing that will reverse true inflation is deflation. A debtor government isn't going to allow that to happen.

 

I am confused about what you mean. You are talking about changes in supply and demand that do not have to do with inflation caused by printing more money?
What would cause changes in supply and demand across the board, the same way that inflation does?

I am also extremely skeptical about whether higher interest rates will truly "stifle demand", despite what some economists claim. Maybe you would like to try to explain how there is any connection between the two?
We can't have critical discussion about an economic claim unless one side first puts forth an alleged reason for why it would be.

Encouraging people to borrow more money (with lower interest rates) is not going to create the type of spending that we want for a healthy economy. Hopefully you will mostly agree with that (with a few exceptions).

 

Maybe I need to clarify. If the government has 5% inflation for two years when it should have had 2%, then to stay on track, for the next 3 years it would need to have zero percent inflation. At the end of those 5 years, that would end up putting the overall total inflation in the same place as if there had only been 2% inflation for each of those 5 years.

(not entirely mathematically accurate but this is oversimplified to make a point)

What I meant is that by reducing the inflation rate to below the average, it will "reverse" the excess. Price levels can be put back on the same track as if that excess inflation had not happened.

I actually used the word "compensate for", not "reverse". So you have misinterpreted what I was saying.

 

Inflation is a matter of dollars and the size of the money supply not rates. Those years in which inflation is 2% will still add inflation to the total money supply but it will add less than when it was 5%.

No the money supply always grows at government's hands. Every dollar that inflates the money supply reduces the value of the currency. It is additive because government can't tolerate deflation. During my lifetime the dollar has lost more than 90% of its value. Nothing reverses. It always grows. It is permanent without any deflation. The purpose of the 2% "target" is nothing more than an insurance policy that the money supply will not deflate. It is still inflation and still adds to the total. money supply Our government is a debtor government. If the value of the dollar were to increase the debt would have to be paid with more valuable dollars. That is why the "target" is not zero where it should be. Nothing is reversed. Nothing is compensated. It marches on incessantly as government spends money into existence.

 

You're missing the point.

You need to read the context of the conversion rather than replying only to specific quotes in isolation.

You are talking about something I was not talking about. (And by the way, I don't disagree with you)

 

Inflation (increasing the money supply) has nothing to do with prices. It looks like prices have risen but actually the problem is that the dollar is worth less so it take more of them for any transaction. Your second question is a little more complicated. Let's take fuel as an example. Fuel prices have risen to some degree from the devaluation of the currency but primarily because supply was reduced because of the government's war to abandon fossil fuels. The fuel price hikes end up affecting most other prices because of transportation costs and energy costs in general. It costs more to make plastic or fuel a boiler. It affects most prices. That is how supply and demand can affect the economy in general.

In my industry in which most products are made in China, the supply shortages result from ships parked off the coast of California, difficulty in filling employee roles increased energy costs and so forth. Inflation has nothing to do with it. It is all supply and demand. The supply shortage will correct itself over time. There isn't any thing you or I or the government can do about it. In the meantime we pay higher prices. That is an example of a specific situation not affecting the economy universally like the fuel shortage.

Higher interest rates affect the acquisition of anything bought on credit. It could be a car, a house or anything else that is bought with credit. When prices (acquisition costs) rise, demand declines. That is how demand is stifled by higher interest rates. The government has been using higher interest rates to reduce demand for a long long time. But understand it doesn't reduce inflation, it merely reduces demand which, in turn, reduces prices. It is advertised as a way to reduce inflation because government throws supply and demand in with inflation even though it doesn't belong there. Inflation and prices are affected by different causes, create different effects and have different ways of dealing with them. Obviously, interest rates don't affect the acquitition costs of things purchased with cash.

On an individual basis I agree with you. People will have better financial lives without debt or at least with less debt. When you consider the economy at large debt creates sales and helps develop wealth. If I want to buy a $30,000 car and I don't have the cash for it, I probably shouldn't buy it. But if I use credit to buy it, a sale is made, profits are generated, people are paid. It may be a negative for the buyer but it is a plus for the economy. Personally, I pay cash for cars. I tend to buy less expensive ones than most other people but I don't incur debt or interest to my benefit. I spent a few years saving up for the new car we bought in 2019. If everybody did what I do the people would be better off but the economy would suffer. We have a consumer oriented economy to be sure.

 

You had put some value on lowering the amount of true inflation. Lower inflation is certainly better than higher inflation. But it doesn't compensate for a higher inflation rate. It just adds less to the total. Inflation of the money supply can go up but it never dips into deflation which would actually reduce the money supply. It is cumulative. If you agree with that then we are on the same page. If you don't then I think you are confusing inflation with prices like everyone else does.

 

That could be a separate argument. That was not the point to this thread.

I don't disagree with you. I'm just frustrated at you because you seem to be going off on a tangential discussion (and on the first page at that).

 

Sorry you didn't like my explanations.

 

The collapse has to be postponed to a point where a controlled recovery is guaranteeable. The financial and political elites cant have us coming out of it in a position of independence again. They want neofeudalism, so they have to guide both the collapse and the recovery in an orchestrated manner to ensure they come out the other side with totalitarian control over everything.

 

I think the Progressive Left just has a penchant for lower interest rates and printing more money.
Keep "stimulating the economy".

Of course such efforts are not sustainable.

Like an immature child who keeps wanting more candy. Or a ditsy teen girl who keeps spending money on a credit card, and expects to just pay it all off with another credit card.

 

Inflation will continue to grow since government is still spending money it doesn't have. Prices will decline when they reach a point that reduces demand. You were close though.

 

I don't think we will have higher spending unless we re-elect Trump in 2024.

We had $3.3 Trillion Deficits in 2020 and this year projection in $1T, and trending downwards.

If you say so, but rates are going up, and money printing slowing significantly.

 

Inflations has been prevalent all my life it is nothing new and it will never go away.

 

He likes to give away a lot of free shat.

 

Yes, like checks with his name on them. We'll be paying for that a long time.

 

Someone wanna translate this **** as well because I don't speak dementia

https://twitter.com/bennyjohnson/status/1534767636659245056?s=20&t=LrgEmwmy6PHyjRiSvh_qCw

You *******s on the left elected a dude with ****ing DEMENTIA. That was your best choice? This is the peak of the DNC?

 

The problem is excessive private debt that can't be serviced at normal interest rates. This debt was undertaken because interest rates were pushed too low during COVID instead of new money just being issued by the Treasury. If that debt is defaulted, it will crush the money supply and the economy. The only alternative is to inflate it away, but raise interest rates to the point where people aren't taking on new debt faster than the old debt is retired. The Fed either doesn't understand this, or they are deliberately making the problem worse.

Government issuing money increases total purchasing power and demand by reducing real debt burdens.

 

And how about when inflation is increasing faster than wage levels?

 

Well, you ignore the reasons why Trump allowed the spending of so much money (The Left and the Democrats pushed and forced him into it) That would be a separate story though for another thread.

 

Not my wages, maybe yours.