Low Inflation Haunts the Fed: Here's Why | WSJ
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- Опубліковано 20 бер 2019
- Inflation is among the most powerful forces in financial markets. It dictates the supply of money in the economy, and changes interest rates, which are the cost of borrowing money. Here's how it works, and how the Fed works to regulate it.
Photo composite: Dom Amatore for The Wall Street Journal
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George Washington threw a silver dollar across the Potomac river. That feat cannot be duplicated today, as a dollar simply doesn't go as far as it used to.
Wow ok.
HA
By that analogy, the modern equivalent would land directly in front of his feet.
We still have silver dollars.
You are looking at currency the wrong way. What you have to see is if the inflation rate is accurately determined. The bureau of labor statistics can manipulate this number. Also banks doing fractal lending makes inflation much more insidious to calculate.
Everything have gone up but my salary!
according to the video, this is a good thing (an increase in salary drives up inflation even faster)
@@Voidroamer
You want him to stay poor???
Then find a better paying job or negotiate a better salary. Only you control what you get paid.
@@Voidroamer Then why is there rich people, if higher wealth = higher inflation.
you need profits not a wage, if you want more than the average... Are you passionate about any business ideas? thats the secret to improving your happiness. do what you love and make a living from it.
I love how almost all inflation charts exclude energy and food costs. It's like my salary excluding taxes, restaurant bills excluding 20% tips and airline tickets excluding luggage charges. 😂
there are many ways to measure inflation, one method is to just measure consumer prices, which gives an accurate measurement of prices right now.
But energy and unprocessed food is very volatile, so when core inflation is measured, they are not included.
Long term, inflation and core inflation will converge.
Inflation is much higher for things that are not portable like housing, health care, education. Most other things have their prices being pushed down by cheap foreign labor and SUBSIDIES.
Who the h pays típs? Tipping someone for doing their job? Insane
@@soberanisfam1323 Considering the restaurants, motels, etc. base their wages on them getting tips, your argument is way off base. If they got a decent wage to start with, i'd agree with you.
@@johnkelly5949 nope... The employer must pay minimum wage(make up the difference) if the tips don't equal the minimum wage.
Don't subsidized cheap employers.
Lets just conveniently leave out the part about the debt based economy having more debt in existence than there is currency.
Lol... And that's a problem because? You probably have more debt than cash, and I will include all your bank balances.
I am sure you are capable of figuring it out
VYCanis Majoris I did. No problems.
You're going to need to think about how the creation of additional public/private debt contributes to inflation. No worries I beleive in you
VYCanis Majoris thanks! Still got nothing to do with the amount of physical currency out there.
Why is the wall street journal treating me like I'm 5
@William Bailey There is no real incentive to educate people on the Fed because theyd probably lose confidence in the economy if they understood it
Maybe financially you are 5
How can they say inflation is low when my rent rises 5 to 10% every year. My job forces me to live in the city but rents have gotten so bad that they only way to save money is to live in a dormlike situation with roomates. I think the next recession is right around the corner because high rents/mortgages have maxed out alot of people. I worried that the FED had kept the interest rate to low to long and won't be able to provide much stimulus when this recession hits. Sadly I'm kind of hoping for a recession because it will lower the cost of housing enough that I might be able to make a downpayment on a small place. AT 32 I'm growing tired of roomates. I'd move to a smaller town if I could find work.
Look into buying a small rv with a bathroom and park near where you work, or even on the work property.
If your monthly expenses for rent are too much, you'll never be able to save money for a home. Live in an rv on the cheap until you can pay cash for a property with low taxes?
Sounds like you need to look into getting another apartment or a new job. Try to learn a new skill in your spare time, like coding or something you can learn without spending the high costs associated with traditional schooling. Once you get enough certs you can change fields and your anchor to your current location is removed. Alternatively you can also look into other apartment buildings using all sorts of resources available online. Without knowing your situation, I'll guess that there are other apartments nearby that you can look into getting. A third option would be to talk with your landlord directly and perhaps work something out. Landlords prefer to have their units occupied so if you mention that they are pricing you out of the market they might work something out with you, but be aware that that is a short term fix as they will most likely begin searching for tenants who will pay their higher prices so you'll then might need to pursue one of the above options mentioned.
CPI (consumer price index, the index that most "official" inflation figures reference,) does not include housing, food, or energy; aka things the average person cares about and spends the most money on.
@@Meton2526 rent is included in CPI
@@alquinn8576 I guess it does. Somehow I had it in my head that it excluded housing.
U left out the part about fractional reserve banking
Tai Theguy and he left out the part that explains that our entire monetary system is a blatant open scam meant to rob you of your money through means of inflation and then again by lending the money to your government at interest for programs that don’t benefit you at all which YOU have to pay back through taxes and the only way to get rid of this system is bitcoin or crypto
@@jayfinne626 And gold, if anything
Jan Kvapil nobodies going to carry around a bunch of gold to transact with, its heavy, plus if everyone stored gold in their home people would be getting robbed constantly. However if we all collectively bought and started using bitcoin to transact with, we could end the current corrupt monetary system as it is, ending their ability to rob us too. As long as everyone held their bitcoin on a cold storage wallet no one can confiscate it as long as you aren’t giving away your private keys and it will progressively get easier and easier to transact with as more and more services emerge to supply the demand for frictionless easy crypto transactions.
@@jayfinne626 please tell me you're not being serious, are you a bot? If countries and all the rich store gold, why wouldnt we?? I'm not saying don't invest in cryto, just that you Should also invest in gold. Gold has value, you can't print gold. But you also can't print bitcoin technically)
When is the last time you paid $9 for a movie ticket
Can’t remember the last time I paid for a movie ticket
Jmurph Silver 5 dollar Wednesday!!
9 dollars is the normal price just about everywhere man
$9?? In my neck of the woods $13
what's a movie ticket?
Inflation is an increase in the money supply. Rising prices are a symptom.
Yeah, this is not a very accurate vid .
this is not true.
No, inflation is defined as the rising average price of goods and services
InfinitaSalo as a result of a money supply, cuz rising prices are just called rising prices
@@Eureka549868879 do you know what "definition" means?
A slight correction at around 2:10.
Central Banks use the supply of bank reserves through their open market operations and standing facilities to target short term rates in the interbank market. (known as the fed funds rate in the US.)
Central Banks add and drain bank reserves to compensate for the fluctuations in the total amount of bank reserves caused by the autonomous factors. They are treasury spending, taxation and issuance of bonds, cash demand and float.
Simply put bank reserves are the means to reach the target rate.
Another thing to keep in mind is that the money supply isn't just made up of central bank reserves and bank notes but also bank deposits. Bank deposits can work as money because of two key factors. One is that most depositors don't withdraw all the money from the banks. Second is the process of deferred net settlement which enables banks to cancel out transactions made by depositors thus greatly reducing the need for holding bank reserves. In fact the greatest demand for bank reserves comes from the so called reserve requirement, not for settlement purposes.
Reserve requirements are fairly lenient. Usually banks are required to hold a certain amount of bank reserves against outstanding deposit liabilities. The way the fed enforces the reserve requirements is through a roughly two week maintenance period. Banks have to average their holdings of bank reserves throughout the maintenance period. When the maintenance period nears its end demand for bank reserves become more inelastic because there is not much time to delay things further. Central Banks who target short term rates must intervene to prevent any deviation from the target rate. This is usually accounted for by the desk alongside the other autonomous factors.
The short story is that when central banks target short term rates the reserve requirement becomes largely irrelevant because of the required elasticity of the money supply to suppress volatility in these short term rates.
Edit:
QE is simply an extension of interest rate targeting enacted upon the broader money and capital markets.
QE also removes the wind from the market causing everything to become dependent on them.
I aint reading allat🤣🙏💀
This didn't explain anything
Correct. Its a very well made propaganda video.
Eric Lumpkins lol, no.
Haha I know
Evidence or the lack of suggests deinflation isn't the problem Keynesian economists claim. We know inflation is bad; but no economy has ever been destroyed by deflation itself.
@@JasonHead deflation destroyed people in 08/09.
Inflation is an increase in the money supply, NOT an increase in prices.
The increase in prices, is the result of inflation, not the actual definition of inflation.
Inflation haunts the populace. Inflation haunts the retirees. Fed? Nah.
It's not the retirees, it's the government that uses inflation to pay for its spending.
No inflation is the best inflation
rafaobss inflation has its pros. It keeps the economy moving
@@RamziItum so before we had fiat money and targeted inflation... did people just not save, invest, speculate and consume?
Low inflation if you are not eating and buying essential things in life.
Having a goal for 2% makes no sense. It should be 0%. Not deflation, not inflation.
Inflation pushed me out of my home state (CA) due to expensive housing/rent, car insurance rates, and general cost of living. I wager that increasing it will cause more west/east coasters to head inland and increase the populations causing inflation in other states as they too begin to fill up with people and businesses. Such is the way of our country.
I got pushed out of my home state of CA too. I don't blame inflation on that. High taxes, regulatory burdens, and the war on the middle class made it too expensive. Inflation is USD based affects all of us that transaction in that currency Nationwide.
@@Jordan-vf4up It's Demand-pull inflation basically lol
@@stevefink6000 bro I'm thinking of leaving to. I own a small roasted peanuts business and every year is new tax this or that but I dont see Google being charged more. I have good revenue but year by year my profit shrinks. Its ridiculous. Plus I work in different counties so each has their own different rules which are all different which is a burden.
Not only that but since because of the major amount of ice is melting in the artic and Greenland , the sea levels are going to be rising and anyone who sits on either coast are screwed , the cost of homeowners in those areas will lose substantial amount of money in home equity while people who live in the North or Midwest will experience hundred thousands of dollars in gains .
@@stevefink6000 Inflation has nothing to do with that, Inflation is when the government prints too much money . Basically thats why everything gets expensive because the dollar lose 2% because of supply and demand. When their is too much supply the demand is lower
High of prices is a consequence of inflation , inflation is when the government increase the money supply without demand
Cool, so I don't care about high inflation then.
Wow thank you just what I needed to see. Now I'm starting to get a better understanding of what is going on today.
Wow I'm learning so much!!!! thank you :-)
At the Alamo Drafthouse in Brooklyn, it's $17.50 for a movie ticket. $17.50!!!
It's kinda worth it though. Super clean theater, all the seats have a good view, the food+drink service, the strict rules they enforce to make sure no one ruins the experience for others, etc.
it’s 150% x Netflix subscription. wondering how it even keeps surviving
Its fine.... So many high end movie theaters in Nj the same price. Its all for the premium ambience. Keeps the illegals and poor out.
@@emotionscomeandgo Well, it still keeps assholes at the movies.
@@RudieObias that is the point. All the assholes can pay for their "ambience" , while i say home and pirate my movies.
This video calls saving money hoarding... That explains why the average US savings rate is in the negatives.
1920 theater ticket prices: $1.40
2020 theater ticket prices: $10.00
2120 theater ticket prices: $72.45
Meanwhile, here in Argentina that terrifying 12% of inflation would be Godlike
The thing is, Argentina doesn't matter. The driver of global markets is still the US, with China closely following. All other central banks, including the ECB, copy the feds policies just with a delay...
@@joschomo1010 so? What does that have to do with my comment?
Come to Venezuela! You'll love it here!
Argentina is a different situation. The government is too large of a fraction of the economy, and is very subject to special pleadings. Inflation could be lowered by reducing the govt. debt per annum; but that can only happen if programs are cut or taxes are raised. Dramatically increased interest rates would help in theory, but would have to be so high that private borrowing essentially comes to a halt.
Your country needs to bring back firing squads
The other problem with low rates is it encourages low margin investments since you don't have to take much risk to beat the rate. This is why do many companies are "investing" in their capital structure by buying back stock on borrowed money as opposed to increased production or new products. Why take the risk if you only need to beat 2% on your bonds to make a profit? Super low rates are not good for incentives.
A lot of companies can only survive, because the interest rates are low. In fact there are zombies. Higher interest rates would bankrupt a huge number of such zombies. Banks give them new credit, because the alternative would be to depreciate this bad loans. Countries with high national debt are in the same position, where higher interest rates would ruin their state finances. Countries also have problems with tax heavens. The money their would allow them to reduce their national debt; opening space for higher interest rates.
Hence we now have a multitude of Ghost Cities. Imagine how much fun they will be in a decade or two.
What's the point of having inflation in the first place?
raventhorX robbing the taxpayers
There no longer worried about low inflation lol
Deflation is the natural order of prosperity. It only hurts financial speculators and govt.
Price deflation to be precise, monetary deflation is an artificial reduction of the quantity of money supplied to below the quantity of money demanded (the amount people would like to keep in cash balances).
CPI is a myth. CPLie is more accurate.
You cannot explain inflation without explaining who the Fed is and what is their relationship with the US government
They are an over-glorified clearing house for inter-bank settlement. The Federal Reserve is a bogey-man for conspiracy theories, but in actuality its effect is pretty much nothing. The Treasury department is where you need to look for corruption. Deficit spending and "progressive" taxation with copious amounts of cronyism to make sure that well connected corporations never pay their taxes.
We need an enforced debt ceiling WELL below the current amount and a flat tax with NO DEDUCTIONS or special programs.
Meton2526 in other words. Monetary policy should be left to professionals and not be subject to a 4-year political cycle. How are we still not aware that a 4-year political cycle is, in the current era of long-term problems, a disaster of unimaginable proportions?!
@@FreekToTakex Unfortunately what we're seeing now is the failure of democracies. Most people are ignorant, and have no possible way to be able to vote in a logical informed manner. Social media is exacerbating the fact that voting is emotional by reducing structured debate into witty emotional appeals and logical fallacy. By the time a general election rolls around, the two party system has filtered for candidates that have no hope of serving the interest of the country as a whole, but only implementing policies that appeal to fear and faux virtue signaling.
The monetary basis of our country is influenced by one side demonizing banks into nothing more than institutes of plunder, and the other side demonizing the supposedly corrupt and unaccountable Federal Reserve that in actuality has no real power. Our tax code is somewhere between 7,000 and 70,000 pages depending on who you ask, and it's due to lobbyists buying politicians to give subsidies to special interest and special perks to buy votes.
Having a longer election cycle leads to uninhibited damage caused by unchecked power, and too short leads to a flip-flopping back and forth between two sides that implement policies either of which would be terrible, made worse by the half measures between them that have all the cost and none of the benefit.
@@Meton2526 I see your point, and I couldn't agree more.
Before implementing a longer political cycle, as demanded by the nature and gravity of the problems we face as a species and as individual nations, we should have a good hard look at how we want to implement democratic decision-making. In essence, I believe the knowledge of the many outweigh the knowledge of the few, but only when the knowledge of the many is an aggregated whole, not a partial one. What we're seeing right now is uninformed decision-making on the part of many voters greatly diminishing the knowledge that is supposed to be inherent in equal political representation.
To combat this problem, a few of the things you mention contribute greatly to this phenomenon. First, the nature of modern media is such that they prioritize clicks before well-researched reporting, with politicians following suit. Any coverage is good coverage, at last, the sheer amount of coverage was one of the major reasons Trump got elected (and I'm not taking anyone's side here, as a discussion on the nature of politics should be independent of partisan view. This development vastly distorts decision-making, as does lobbying, which should be kept to a minimum or at least be more balanced.
Should we limit the risks and reach of these problematic factors to a minimum, however, I still believe longer political cycles should be largely more beneficial. Especially when politicians are under enough checks and selected by a system of, if need be, qualified democracy.
@@FreekToTakex
That's a hard line to draw though. In a perfect world we could craft some test to qualify people to vote, but now you're removing representation from a class of people who may not have the time or means to research the issues. There is a logic to rational ignorance if researching issues would cost more than the value you could gain from making an informed vote.
The other problem is that we have reached a point in popular opinion where democracy means enacting the will of the popular majority, regardless of the impact it has on the individual. I'm of the belief that a society is only virtuous to the extent that it preserves the liberty of the individual, and that any and all laws to restrict the actions of an individual should only ever be for a result of greater liberty on the whole.
Unfortunately the USA is repeating the ideological battleground of the 20th century. In fascist states, the individual was made subservient to the nationalist collective. In socialist / communist states, the individual was made subservient to the proletariat collective. In the USA we see one side assaulting individual freedoms for an appeal to a tradition that they believe must be conserved, and the other wing believes that the individual must be sacrificed for the sake of progress based not on science or technology, but feelings. You don't own what you create, it belongs to everyone. You don't have a right to freely speak ideas, it offends people. You don't have a right to choose how you live, it's against our tradition. It's disgusting.
Democracy is a failure because it assumes that humans are horrible enough that we need a collective defense, and somehow despite contradiction believes that humans are capable of governing each other fairly. The only virtue of democracy is that it's not as bad as all the other governments.
yet not a word about fractional reserve system and money printing...
Crypto Jack they don’t want to over complicate it.
Can’t tell them the truth
Came for WSJ, found WSJ: Kids!
The inflation of the 70's was caused by a commodity shock not a large increase in demand. The Arab Oil Embargo was a sharp decrease in supply.
But, did the oil price count? The graph on this video excludes energy and food costs.
@@Anand-qb1wp It would not on the CPI. However an increase in energy costs will filter down into consumer goods as the cost of energy to produce and ship will go up, leading to increased prices.
If no government existed, all prices would be based on supply and demand, however once you start mucking about with the monetary system you get distortions that ruin any kind of logical or empirical analysis.
Having lived through the 70's, it was not just the Arab Oil Embargo. That only lasted a few months. Both Nixon and Carter appointed Fed Heads that lowered interest rates in response to their political pressure. Simultaneously, the gov't ran large deficits (which also creates money).
@@christianlibertarian5488 Pretty much any form of debt, which is future earnings consumed/invested today, will lead to an increase in the theoretical "velocity of money" since more is being spent, as well as being inflationary since more money is chasing after goods/services relative to there NOT being debt spending. Since a lowered interest rate leads to an increase in debt spending (the cost of borrowing money is cheaper,) lower interest rates are inherently inflationary.
This would apply in a free market or in a central bank economy, however a free market has feedback loops that will dynamically re-balance the factors to natural rates, where a centrally planned monetary system is strictly based on political factors and not market conditions.
@@Meton2526 You have read further in the playbook than I have.
.73¢ sounds high for 1955 and $9 sounds a little low
$15
You must be from CA or NY where everything is artificially pricey. In the other 48 you can see a movie for $9.
@@TheBUGZNTA or even 8 or 7
@@jankvapiljr.2901 yup in the part of arizona I live in you can see a movie for $7 and some change.
@@TheBUGZNTA here in Oklahoma 7 $
Thank you.
2% is too low? The true inflation is more around 6-7% if you actually study money supply and base the real definition of inflation. At 2% a year that destroys 90% of purchasing power in the average lifetime and now we have people at the WSJ talking about how a 2% y2y is low. This is non-sense.
Shouldn't the goal be to keep the inflation lower.
Nope, that means houses prices fall every year. Do you want to own a house that depreciates in price, or stocks or bonds that depreciate? Gold also would depreciate.
Misleading, there is no mention about printing money and how it affects inflation. See Venezuela, government prints out money relentlessly procuring an inmense inflation.
The fed printed 16 trillion........no inflation
@@ebp1234 You have no clue what you're talking about. The inflation was enormous. The inflation is in asset prices oppose to consumer prices, as of now at least. This will reverse and asset prices will drop significantly and consumer prices will rise significantly. This has happened over and over again in history. Keep living, you'll see for yourself.
The USA monetary system does not print money at a government level. All creation of physical currency is offset by a reduction in non-physical money; it's a wash. Money is created when private banks make loans; an asset and liability are simultaneously created in equal amounts, but due to how the inter-bank clearing system works (aka the Federal Reserve, and over-glorified clearing house,) those liabilities are cleared only in a net settlement so that a bank essentially owes money to itself to account for the debt asset it created.
What do you think the goal of ‘printing money’ is? By buying bonds, the Fed is able to increase the money supply, consequentially lower interest rates and thus increase inflation, and vice versa.
@@ebp1234 It's because the fed doesn't change the percentage, it doesn't mean that inflation didn't occur.
West Texas needs to watch this. Prices out here to dam high
interesting video.
Prices are a ratio of products to money. Usually 1 product for some amount of money.
if the totality of products available goes down and or amount of money available goes up, you'll get inflation.
if the totality of products available goes up and or amount of money available goes down, you'll get deflation.
Perhaps, if demand doesn't change
Gold and silver! Real money has always seen huge gains during these times, now is the time to buy
Gold and silver are no better than fiat currencies for normal people. They sit there generating no income. As a hedge they're fine, but currency should be used for nothing more than a unit of account and medium of exchange. Anything you won't spend in the next 3-6 months should be converted into something that can generate income.
The only difference a commodity standard does for a currency is to limit printing, however the USA does not have a monetary system where the treasury prints new money. When the treasury creates new currency, it is offset by a decrease in the non-physical money that is used to "pay" for the money. The US Treasury creates physical bills which are sent to the Federal Reserve that is distributed to banks to be used as a medium of exchange. Currency was "created", but money was not.
The closest thing we have to inflationary money creation is when the Federal Reserve buys treasury bonds on the open market, but all that's happening is an asset swap between one form of government obligation for another form of government obligation; it may screw with the price of treasury bonds, but no new money is really created.
Meton2526 they protect purchasing power.
@@Newlinjim Not really once you consider the costs of acquiring and liquidating metals. Sure it's better to hold gold for 50 years than cash for 50 years, but a low cost index fund of stocks and bonds will beat either one during any 15 year period in US history. Shorter time frames are subject to even more volatility. And they earn NO income, they are strictly fungible commodities that can at best show speculative gain, and at worst can plummet in value if you're on the wrong end of a cycle.
Dude no. I'm not sure if you want a GOLD STANDARD? Or you're just promoting the purchase of gold because i'd love a Gold Exhange Standard but purchasing gold is a huge risk. I'd learn some trading strategies and go into some safe stocks or try out crypto if you're prepared but i'd urge the majority of inexperienced people not to spent their life savings on gold. But yeah monopoly issued fiat sux if that's the real point you're trying to make.
@@christianhinojosa848 it was money, so it was worth buying and hoarding pre 1933, since 1970 the governments of the world have twisted it into a cyclical asset, so I do honestly think it is the asset to be investing in right now
Good analysis
Austrian economics is the answer. period ....
Austrian GDP says otherwise
Joey Straka - Austrian Economics is just the name 😂😂😂. Austria has nothing to do with Austrian economics. 😂😂it’s just a name dude.
Sadly LA California Kid My b you got me on this one 😂😂 I be high sometimes
Austrians have it right. Technology also plays a big part in the discussion: dunconomics.blog/the-addictive-cost-of-technology/
Duncan White -dude Austria has nothing to do with he name at all.just like the Chicago school of thought has nothing to do with Chicago, Austrian economics has nothing to do with Austria
At a time when corporate profits are at an all-time high, wages always seems to take the blame for inflation. The last Tax Bill saw 82% of the benefits go to the top 1%. They used that money to buy back their stocks and keep the Market buoyed. Maybe a little restraint on the part of corporate America would be helpful. Their greediness has gotten way out of hand. When was the last time we heard that the prices of goods and services went down? Hardly ever. We now have a 2 Class Society. Surely, that can't be good for our country.
Simple fewer and fewer Americans pay Income tax. 10% of the earners pay 90% of federal tax. Not really any room to cut lower level taxes
Prices of goods and service drop all the time. Gasoline is cheaper now that it has been in my life, and I'm nearly 60. I paid $10,000 for a 55" plasma TV in 2002, but $1700 for a 60" LED last year.
@@christianlibertarian5488 Maybe you don't eat but the rest of us do and prices keep rising. Gasoline rises and falls and TVs keep you watching MSM but my rent keeps going up. That's what matters, not TVs.
@@charliechocolate8276 The price of literally everything has fallen substantially throughout my lifetime, with two exceptions: medical care and education. Your rent may be going up, but move elsewhere and it will be stable. The rent I charge certainly is not going up.
Are you using the CPI to measure inflation? The measurement that leaves out energy and food? LOL. Yeah totally accurate measurement of inflation.
Everything is so fckd up in their video
Energy and food are extremely volatile markets with tons of speculators. They are not a good measure of inflation (which is the value of the USD getting weaker)
@@AdamSmith-gs2dv They are absolutely a good measure of inflation. Daily items that are purchased by even the poorest among the population? You think what, boat prices are an accurate way to measure inflation? Volatility is not an excuse, when a poor person is pay $4 a gallon just to make it to their $12 an hour job, that is absolutely a good measure of inflation.
Great video. Very informative. Your graphics and animation team are doing an amazing job too.
*_WSJ is currently investing large sums into multimedia_* (as traditional journalism and print continue to fall in market share).
*_I have to say, it looks like It's really paying off!_*
too little or too much inflation? arent prices suppose to deflate over time due to innovations?
Shhh let the keynesians play their games. We'll keep stacking silver and satoshis
In a world with honest money, yes. With increase in innovation, you should have an increase in wealth and abundance. Scarcity would decrease and things would get cheaper. Hierarchical societies would theoretically even out and the wealth gap would shrink in a society with honest money. We’ve seen this historically in the Byzantine empire in Rome.
Too bad that theory has never been tried thanks to the scam that we have now that constantly shaves the frosting off the top of the cake of profits and innovation every single day of every year.
Yes but money printing erodes all the gains of production
Well yeah in some sense. But innovations creates more demands. For example especially for younger people it's now hard to imagine living without the internet, laptops and phones, all cost money. It was possible 50 years ago. So people now need the extra money to buy electronics. And people need extra money to buy cars with modern technology, which wasn't available 50 years ago.
@@davidfreeman3083 Yes and in order to buy things, they need to make things. People cannot demand without first producing.
*increased demand* yah right. The ,fed, as he called it ,federal reserve, is privately owned and operated without governments to look over it. When the .fed. Prints too much money. We get inflation
You need to upgrade your reading material. The Fed isn't privately owned, ot does have government oversight, it's not the body that prints money, and its the only institution in the US that actively manages inflation.
0:18 that's the wrong symbol for medicine. They used the Caduceus (symbol of merchants, thieves and messengers), they should have used the rod of Asclepius.
Right at the start, what inflation does was given as the definition of inflation instead of the actual definition is.
Monetary inflation is a sustained increase in the money supply of a country (or currency area).
when u get a 2 - 4.5% increase a year at work but it's just inflation
The more this is explained to me, the more it seems like it's just a giant scam for super rich people to make even more money that they can't spend in their life times.
You need inflation or the fractionally banking system will collapse
FRACTIONAL RESERVE BANKING AND THE FED CHARGING INTEREST TO THE GOVERNMENT TO CREATE FEDERAL RESERVE NOTES IS THE CAUSE OF INFLATION. PERIOD.
This is too simplistic. Yes the FED controls the rates and hence inflation, but their overlords are having trouble controlling demographics. They also cant control the limits to growth and peoples inability to be super human. Until now however. Those who create superhumans through genetic engineering (e.g.: China/Russia) will have higher incomes because they will be more productive than average humans are today.
Thanks for figuring everything out for us, Einstein.
Inflation is low because the changed the way it’s figured to a totally unrealistic formulation
The missing part to this story is the deflationary effect from technology. This is why inflation has become confusing for economists. It also explains why society has an unhealthy reliance on tech. More freedom is the solution: dunconomics.blog/the-addictive-cost-of-technology/
Inflation is relative.
If I planned to buy a house inflation has been like 10% a year for me. Morons end the FED
IHATE M it’s great for people who already have mortgages - balance inflated away.
Nothing on Stagflation?
Nothing on nothing. I spent 10x more time on the valuable comments than on the worthless video.
Just wait until rates go negative. You’ll be paying the bank to hold your money. LOL
What a system.
They have been doing that in Europe for years already.
may be like : oh well, hello there.
Inflation rose in the 70s because we were taken off the gold standard.
Inflation was already up to 5% and it initially went down after we came off the standard
@@Erikpdx And Paul Volcker saved us from it and the US has road the wave of capital brought in to the treasury and economy for decades!
Inflation is the way you keep the middle class in check and how you keep the poor down
Inflation is a natural product of a good economy, nobody wants the middles class or poor to suffer, the middle class make the rich rich, they’re the main consumers goofy
In Econ 102, Macroeconomics, I learned that minimum wage is not fair for city areas. Also, the economy is not big and poor people remain poor because of the lack of creation and commitment.
Joey Straka Democrats want everyone to suffer. Steal from the rich, decimate everyone else, pretend they are saving the world with luxury cars and holly wood and Wall Street mansions while the rest of us live under crumbling bridges.
@@Frost517 no you're right the retarticans giving the rich a trillion dollars in tax cuts and making it so they can write off the full amount of a jet as long as its over a million dollars so the tax payers pay for it and they get a free jet ya thats helping
100% accurate
Pretty sure this corona thing helped solve the whole Low inflation thing
I am not sure why deflation is a problem, things getting cheaper sounds pretty good to me.
There's room if they allow negative interest rates. It'd be nice to get some of that bank bailout money back.
Negative interest rates would not mean getting bank bailout money back. And most of the money that went to banks during TARP has already been paid back BTW, since they were loans.
First 20 seconds gives the wrong definition of inflation 🤦🏻♂️
More currency supply =MORE INFLATION.
It is possible to lower interest rates again. It is being done in some jurisdictions. It's called negative interest.
People don’t “horde” their money... they SAVE it
"hoard"
Or they are investors like me.
Inflation is caused by an increase in the supply of money. Didn’t everyone learn that?
The economy has been unnaturally hot since 2014.
Inflation is not the increase cost of goods and services. Inflation is the decrease in purchasing power of the currency. Read a Websters dictionary from the 70s and then look at it today they literally left out the part where the increase "cost" is due to the currency loosing purchasing power.
Inflation is a hidden tax. Right now it's about 1.8% a year
Demand is unlimited, the only thing that is limited is supply,
How is it that we have theories on something that we created issues ourselves? That we should know how a problem we created is unnecessary. It is mind boggling how we have no idea of how the unnecessary need for money is, yet we still use it.
Truth is inflation is grossly under measured as the CPI doesn't account for much of the things people actually have to buy. The actual rate is somewhere around 5%-11% when you factor in food and energy. Low inflation means the FED isn't running the printing press at full speed, I think we'd all be better off that way.
Inflation is a tax that everyone seems to just accept.
That's a gross misstatement of both monetary policies and taxation. For example, Japan has a huge deflationary problem. The price of consumer goods decrease, however because of this, their economy is stagnating if not shrinking. Even after the huge stimulus effort of Abenomics, it's still in a deflationary cycle, with their GDP shrinking after 2012.
You don't want to be in a deflationary cycle, period, because that's how to get to recession and depression (the US was in a deep deflationary cycle during the great depression). Inflation is driven by the time value of money, and not a tax in any shape or form.
@@himentourage Their economy has been stagnating because of a shrinking demographic. Why isn't it that the poor economy is causing prices to go down due to lower demand instead of the other way around?
The definition of inflation presented in the video is false: Inflation is the expansion of the money supply
Price inflation is the increase in prices
That's incorrect, inflation is the rise in the prices of goods and services. That's not the same. Inflation can be caused by things other than the increase of money supply, including oil, wars, food supply shortages.
No mention that deflation makes it harder to pay off debts. Thankfully America is debt free so this is not a problem.
Inflation is the expansion in money supply. Prices are a symptom
@Vlad Mere nonetheless, my comments still stands
@Vlad Mere you said "depending on how it's spent" Meaning the symptom of price increases will manifest wherever it is spent but the inflation occurred when the money supply was increased. Today's text book definition of inflation is wrong
@Vlad Mere again, you are taking about the symptom. Im talking about ther source
I wish the fed would focus on the maximizing growth of real median wages per hour than focusing strictly on inflation per se. Everything else is just numbers of no consequence. In a democracy and not a plutocracy, increasing buying power for the median (not the average) should be its goal.
How do you suggest they do that?
@@mzar62458
Price control and higher wages.
@@mzar62458 or go back to the gold standard but that would only open up to see how much gold fort Knox really holds , imagine if zero was there and they were guarding nothing, if we were on the gold standard we could literally eat inflation day night and dinner and be safe . Or invest for war and turn America from democracy to extreme fascism in order to compete in war with a possible China and Russia America will need a substantial amount of bodies , allies and blackmail to survive as just the world reserve currency but China is Americans greatest lender and Russia dumped all it's US holdings and bought a fairly large portion of Yuan in it's place which makes the Yuan more favorable in many places than that of the dollar , the petrodollar is on Barrowed time , Saudi Arabia is getting friendly with Russia and China who are oil Giants in their own rights and they can build better weapons together than America , if Saudi Arabia realizes that what will happen to the dollar as it is stripped away from oil? It will be a worthless piece of paper and those who hold it will be game over 🔥🔥 🔥🔥 🔥😈👻☠️. Better find a better solution otherwise purge will be a reality.
@@The_Revolutionist As a temporary measure, price controls can work; but as a permanent measure they produce distortions that can be dangerous for an economy. That's why the Fed (as many other central banks) has a dual mandate(1): Low inflation rate so prices stay stable long term, and low unemployment so wages can grow.
(1): www.chicagofed.org/research/dual-mandate/dual-mandate
Well, inflation will drive up wages, so...you got that going for you. What you really want increasing is the ratio of median wage to consumer price index.
How about they calculate inflation with the cost of housing, cost of insurance, and healthcare. Food and goods alone is not a good indicator for inflation.
The FED knows that, they have their own game going on, where they enrich their pals.
The fed has a basket of with hundreds of thousands of items, including housing costs, insurance costs and ofc healthcare...
I work in the small group health insurance industry and the inflation rate for health insurance is about 3% to 4% annual.
Not even a mentioning of the negative interest rates everywhere else in the world?
This video needs a follow up video on the Fed's Hedonic Deflator that is used to manipulate the inflation number to their liking.
Great misinformation. Pretend you're 5 when you watch this and don't ask any serious questions.
Obviously, consumers would stop buying stuff if they were worried that prices might fall by 1 or 2 percent next year. They would much rather save their money and buy their milk next year.
You would have to take several econ classes to lose enough common sense to be worried about deflation. Prices went down by 50% from 1800 to 1900, which was the most prosperous century any country ever had, probably.
Which is why most REAL economists define inflation / deflation as the purchasing power of a currency, not the price of goods. Inflation helps people with debts denominated in a currency, and deflation helps people with assets denominated in a currency. Deflation is bad because it would hurt individuals and businesses that took out loans, where as a steady level of inflation is priced into the interest rate on loans, so it can be accounted for, unlike deflation. A flat currency with 0% inflation would be ideal for an economy, but it's not possible due to the volatility, so it's better to have a slightly inflationary monetary policy than a slightly deflationary one.
A free market currency would be even better, but good luck convincing politicians that the best thing they can do is leave everyone alone.
@@Meton2526 So why wouldn't a relatively steady level of deflation be priced into interest rates?
@@richardmuller7667 In theory you could, but you'd have to have loans and debt in a negative interest rate, which becomes really difficult to model. In the end it's not a HUGE difference, but there's also little effect from 2% inflation. If you have excess money, it should be invested in income producing assets, and not saved as money (I'm not counting a short-term emergency savings; everyone should have some cash assets that match their acceptable risk profile, but this will lose value no matter what even with deflation because of the time value of money.)
And speaking of which, the time value of money is probable the biggest reason why inflation is more natural than deflation. Money now is worth more than money later. Even a set amount of value now is worth more than that same amount later. Cash will always lose money because its purpose is in no way to make money. It is a unit of account and medium of exchange. Buy assets, don't save money.
@@Meton2526 You seem to be reading from the same playbook as me.
@@Meton2526 Well, from 1800 to 1900 prices roughly halved and people had no problem making loans. And inflation isn't natural. Productivity increases and any commodity based money will increase in value if the commodity is scarce like for example gold. Fiat money would also gain value if governments could restrain themselves from printing more, but they can't. Also, I don't understand your prescription of buying assets. Somebody has to sell you those assets and then has the money so he will be caught with 2% inflation.
this aged well.
How ridiculous. Inflation is because we run a debt driven economy and to pay the interest rates you have to have inflation.
Question to WSJ to make a video on, why the FED officials are not elected? they are arguably more important than the president of the US (FED controlling USD supply affects the whole world not just the US since USD is defacto currency in international trade) Another issue that WSJ should do video on is MMT (Modern monetary theory) inflation vs economic activity is super outdated! Talk about FED's rate vs employment and how FED is cornered into keeping rates low because it may be linked to unemployment.
To help answer your first question, Fed officials aren't elected because the Fed was intended to be a neutral governing body separate from the changing whims of politics. The idea is that Fed officials are supposed to do what is right by the economy no matter what is politically popular at the time. Which is why the president cannot order the Fed to do anything.
You can look into how Richard Nixon pressured Arthur Burns in the 70's to keep interest rates low which helped lead to the disastrous levels of inflation back then.
@@quangle8631 How can you have an un-elected governing body? Economy is strongly tied to politics....
@@drop2001 The Federal Reserve is an over-glorified clearing house for inter-bank settlement, and they have very little power. They are a favorite target for conspiracy theorists and people who don't understand US monetary system, but the source of most government meddling that screws over our system is the US dept of Treasury .
This video is so incredibly wrong it hurts. Inflation can only be affected by the increase or decrease in the money supply. Period. Everything else y'all talked about was just changes in the market price. By combining the two, inflation becomes a useless metric.
This video has not aged well. Fast forward 2023 inflation is the highest in 30 years
If Fed takes interest rates -5% this time, we will have a European style interest rates
THATS why money is being printed at record levels globally. Interesting.
The US Government cannot print money; it can mint currency, but that is offset by an equal reduction in non-physical money. Government spending only comes from revenue + debt.
Deflation sucks mainly for large loan holders. Wouldn't be case, if the currency was backed by a commodity. The feedback system is missing.
d34th56 bitcoin
@@kngu1911 Bitcoin has no inherent value and is nothing more than a speculation bubble.
"Heres a chart from the last century" only shows 60 years
Sunglass Brad 1999 was the end of the last century...
I'm more curious to know where in the US the movie ticket prices are $9 or below $9?
Half price Tuesday?
This video must have been made 5 years ago
This hilariously incomplete video doesn't even mention Quantitative Easing. There's no actual limit to how much inflation the fed can generate with a fiat currency (ask Weimer Republic or Venezuela). Those two certainly didn't use zero or negative interest rates to generate their inflation. The only relevant limit (which affected the Fed in the Great Recession) is the political (for example there were complaining letters from congresspeople about hyperinflation even when the fed was well below its 2% target)
Let me guess, you think gold is the future and you believe that all fiat currency will soon fail?
Ilverin as long as the supply side can meet the demand side , no problem .
This chart shows the inflation rate over the last century. No incorrect. Your chart shows the inflation rate over the last 60 years. Why don’t you get your story straight?
Existing debt is an deflationary force. Compare the existing government debt today vs. the 1970s and you have one of the major reasons why.
If the average consumer or business person operated like the fed they wouldnt have a business, or home. Whats the word? Unsustainable. When debt reaches 200% of gdb thats when hyper inflation occurs. And yeah you can keep hoping gdp goes up. All the while youre still shoveling debt on top of a mountain of debt. But what happens when the year comes that gdp plummets?