What do people usually mean when they say "control inflation?"

[harikaried]

When people talk about the purpose of the Federal Reserve is to control inflation by increasing interest rates.. any idea what people are thinking when they say that?

What inflation are they talking about? Probably price inflation? And probably the increasing prices of goods like eggs, milk, bread?

Why would those prices be increasing in the first place for the Fed to step in to address the symptoms?

 

[onlyrp]

common fallacy is that high interest rate means less money supply, not true. Although high interest rate generally discourages loaning, which could mean less money lent and spent.

Controlling inflation usually means decreasing printing and spending and lending of money.

Again, high money supply can also come with high interest, and low interest rate does not mean high money supply.

 

[Travlyr]

When people talk about the purpose of the Federal Reserve is to control inflation by increasing interest rates.. any idea what people are thinking when they say that?

What inflation are they talking about? Probably price inflation? And probably the increasing prices of goods like eggs, milk, bread?

Why would those prices be increasing in the first place for the Fed to step in to address the symptoms?

You ask some very good questions. My theory is that the intention for that discussion is to obfuscate the truth so that understanding the difference between sound money and unsound currency remains difficult. A sort of Hegelian Dialect.

Sound Money: Commodities. All sound money is mined, grown, or sewn and become valuable through honest efforts of producers. Gold, silver, oil, and other resources are mined and have real value. Grains, livestock, cotton, linen, hemp, etc. are all grown and have real value. Cars, electronics, houses, toys, etc. are all sewn and have real value. Paper money is 100% redeemable. For example, an Eagle paper gold certificate can be exchanged for a pure gold Eagle ... 1 for 1.

So, in a system of sound money inflation is regulated by producers. The laws of supply and demand apply for goods and services with money as another valuable commodity. If a manufacturer builds too many cars, or there are too many car manufactures, then they "inflated" society with more cars than needed so the value of cars go down. The same with gold, oil, food, electronics, etc. Inflation is controlled by natural occurrences, efforts of work, and honest exchanges. Sound money creates a self-regulating free-market.

Unsound Currency: Counterfeit. Fiat money is "created" out of nothing. So it really is not money. Irredeemable fiat paper currency is simply a claim on money. Those claims are forced onto society through force of "law" and threat of violence by media. Obey & pay to play or go to jail. Since fiat currency is unconstitutional it is not really force of law but force by indoctrination and thugs with guns. Counterfeiting pays big bucks... $Billions & $Trillions... virtually unlimited for the insiders and it keeps workers working. It is a criminal organization. The Khazars.

Fiat money inflation is completely controlled by the banking industry. The more currency they "create" the more inflation they cause. The faster they inflate their currency the faster the value of their currency goes down and the price of goods & services go up. The laws of supply and demand operate differently than in a sound money environment because the money supply is manipulated rather than mined, grown, or sewn by producers.

So when you read the elite shills in the newspaper, listen to Keynesian economists, or see Barbie & Ken dolls on TV saying that "The purpose of the Federal Reserve is to control inflation by increasing interest rates." Those actors are simply parroting the teleprompter. Monetary inflation is always an increase in the money supply.

 

[WilliamC]

They mean control the flow of wealth from the middle class to the uber-wealthy over generational time.

Controlling inflation = controlling money = controlling people.

 

[Faust]

When people talk about the purpose of the Federal Reserve is to control inflation by increasing interest rates.. any idea what people are thinking when they say that?

What inflation are they talking about? Probably price inflation? And probably the increasing prices of goods like eggs, milk, bread?

Why would those prices be increasing in the first place for the Fed to step in to address the symptoms?

Inflation can be defined as too much money chasing too little goods. Not within a specific market sector, but across the economy in general. Any one of three things could cause inflation:

- Increase in money supply
- Decrease in supply of goods in the economy (aggregate supply)
- Increase in demand for goods in the economy (aggregate demand)

Interest rates are targeted to manipulate short term consumer behavior but government has very quietly been employing myopic macroeconomic trade mechanisms in order to obscure inflationary monetary policy. Rather than simply containing money supply via responsible spending or reasonable taxes, government has instead opted to undercut inflationary prices by:

- Deliberately hyper-regulating domestic production to perpetuate market flooding inflows of cheap imports;
- Deliberately hypo-regulating illegal immigration to perpetuate wage hoarding inflows of cheap labor.

Money supply is indirectly constrained as dollars leave the domestic economy via payment to foreign exporters and payment to non-resident workers. The majority of these dollars are then recycled back to government via US debt purchases. This is, of course, an unsustainable system that does little to address the trillions of toxic internal debt that sits counterweight to fundamental recovery.

 

[Bruno]

Controlling price inflation through monetary meddling just enough so people aren't up in arms about it.

 

[Steven Douglas]

So, in a system of sound money inflation is regulated by producers. The laws of supply and demand apply for goods and services with money as another valuable commodity. If a manufacturer builds too many cars, or there are too many car manufactures, then they "inflated" society with more cars than needed so the value of cars go down. The same with gold, oil, food, electronics, etc. Inflation is controlled by natural occurrences, efforts of work, and honest exchanges. Sound money creates a self-regulating free-market.

+rep just for the reminder, one that takes all the spooky mystery out of money.

I would add that:

The actual supplies of everything produced and made available for exchange on the free market - real or counterfeit - have both inflationary and deflationary aspects to them -- in the aggregate, and relative to themselves alone.

It was Milton Friedman who said, "Inflation is always and everywhere a monetary phenomenon." Economists, politicians and others who insist on reckoning inflation as an effect only (e.g., a general rise in prices, according to Bernanke), might well agree with Friedman, even while pointing to other, decidedly non-monetary phenomena as causes, in direct contradiction to Friedman's assertion.

For example, highly competitive technology facilitates the production of goods and services, the supply, quality and often utility of which are all increased simultaneously. Technological advances can have a profound affect the entire economy, and can serve to inflate both the quantity and quality of goods overall. And even though the quality has increased, the sheer growth in available quantity causes downward pressure on prices - of everything, not just the raw technology itself, but the production of goods and services to which these technologies (TOOLS) were applied. That is reflected as a general decrease in prices, but that is NOT monetary deflation, nor is it strictly a monetary phenomenon, because the money supply did not need to change for any of that to happen. That is a natural phenomenon in any free and competitive market, regardless of the soundness or unsoundness of the currency.

So I can only agree that inflation is "always and everywhere a monetary phenomenon" if we define all unlike things of value as "monetary", the supplies of which can be inflated and deflated without any change in the supply of any specific thing (like currency). Then yes, both inflation and deflation are a monetary phenomenon, but only if everything of value is considered money - or "monetary".

Unsound Currency: Counterfeit. Fiat money is "created" out of nothing.

Exactly. And I have a thought on this too, as the term "out of nothing" can be taken to mean "in a vacuum". Nature abhors a vacuum. Counterfeits, including counterfeit currencies, do have value. But that value did not come from nowhere. Its value might begin, as pro-counterfeiters of all stripes like to claim, with a mere "faith and belief that it has value" - but that's a slippery ignorance of fundamental mechanics that govern value, which includes the pre-existence of something already known and believed to have value - from some real foundation. The "faith and belief" part is only that it will can be exchanged for full present value before the quantity of its existence, relative to like things it imitates, is detected by the market.

The value of fiat money, which is real in any given moment, does not come from the same vacuum from which it is created. From the very moment it is introduced, its value is not based on one person's belief in the moment (even that was established by the market over time), but rather is siphoned directly from the value of the rest of the supply that it imitates, dilutes, and instantaneously places downward pressure on, regardless how negligible or seemingly undetectable on its own.

 

[ctiger2]

Inflation is the increase in money supply. Interest Rates determine the cost of borrowing that money. If you increase the money supply and increase the cost of that money, the demand and therefore velocity will be slowed down, taming the effects (price inflation) of the increased money supply. The fed is increasing the money supply, however, the interest rates (cost of that money) is staying the same, therefore we're seeing the resulting price inflation in certain areas of the economy, education, health care, fuel, food.

 

[Mattsa]

You ask some very good questions. My theory is that the intention for that discussion is to obfuscate the truth so that understanding the difference between sound money and unsound currency remains difficult. A sort of Hegelian Dialect.

Sound Money: Commodities. All sound money is mined, grown, or sewn and become valuable through honest efforts of producers. Gold, silver, oil, and other resources are mined and have real value. Grains, livestock, cotton, linen, hemp, etc. are all grown and have real value. Cars, electronics, houses, toys, etc. are all sewn and have real value. Paper money is 100% redeemable. For example, an Eagle paper gold certificate can be exchanged for a pure gold Eagle ... 1 for 1.

So, in a system of sound money inflation is regulated by producers. The laws of supply and demand apply for goods and services with money as another valuable commodity. If a manufacturer builds too many cars, or there are too many car manufactures, then they "inflated" society with more cars than needed so the value of cars go down. The same with gold, oil, food, electronics, etc. Inflation is controlled by natural occurrences, efforts of work, and honest exchanges. Sound money creates a self-regulating free-market.

Unsound Currency: Counterfeit. Fiat money is "created" out of nothing. So it really is not money. Irredeemable fiat paper currency is simply a claim on money. Those claims are forced onto society through force of "law" and threat of violence by media. Obey & pay to play or go to jail. Since fiat currency is unconstitutional it is not really force of law but force by indoctrination and thugs with guns. Counterfeiting pays big bucks... $Billions & $Trillions... virtually unlimited for the insiders and it keeps workers working. It is a criminal organization. The Khazars.

Fiat money inflation is completely controlled by the banking industry. The more currency they "create" the more inflation they cause. The faster they inflate their currency the faster the value of their currency goes down and the price of goods & services go up. The laws of supply and demand operate differently than in a sound money environment because the money supply is manipulated rather than mined, grown, or sewn by producers.

So when you read the elite shills in the newspaper, listen to Keynesian economists, or see Barbie & Ken dolls on TV saying that "The purpose of the Federal Reserve is to control inflation by increasing interest rates." Those actors are simply parroting the teleprompter. Monetary inflation is always an increase in the money supply.

That's one of the best posts I've ever read on this forum

 

[CogWheeler]

Unsound Currency: Counterfeit. Fiat money is "created" out of nothing. So it really is not money. Irredeemable fiat paper currency is simply a claim on money. Those claims are forced onto society through force of "law" and threat of violence by media. Obey & pay to play or go to jail. Since fiat currency is unconstitutional it is not really force of law but force by indoctrination and thugs with guns. Counterfeiting pays big bucks... $Billions & $Trillions... virtually unlimited for the insiders and it keeps workers working. It is a criminal organization. The Khazars.

Fiat money inflation is completely controlled by the banking industry. The more currency they "create" the more inflation they cause. The faster they inflate their currency the faster the value of their currency goes down and the price of goods & services go up. The laws of supply and demand operate differently than in a sound money environment because the money supply is manipulated rather than mined, grown, or sewn by producers.

So when you read the elite shills in the newspaper, listen to Keynesian economists, or see Barbie & Ken dolls on TV saying that "The purpose of the Federal Reserve is to control inflation by increasing interest rates." Those actors are simply parroting the teleprompter. Monetary inflation is always an increase in the money supply.

...your cynicism can be cut with a knife. Only fear would suggest that floating currencies were designed specifically to pull the wool over everyone's eyes.

Inflation happens with either type of currency, accept carrying gold around would just make it get out of control. There is no answer to how we change what is fundamentally the earth's 20 meter cube of gold. And cars, please? Need more money to grow your business, or economy? Tough luck. Get on line. The price just keeps going up. Corporate dynasties would love it, too, if prices went down for everything, accept, of course, their accumulated gold. "Corporations are people, my friend". Once the game of monopoly ends with a gold standard, the rest of us and especially the young, are just squirrels, fighting for a nugget.

Seriously, Travlyr, how do we know you aren't a "shill" for those who already possess the most of what would, quite favorably, convert into a slice of that big, finite yellow block? It would only be fair for their children too, as their parents earned it. Correct? I mean, what right should the children of the less privileged have to work hard and get something for it, when we can just pre-ordain the whole show for them, with gold? Its as if the education of the industrialist age escapes you.

This is just some counter-point, that borrows its tone from, well, you.

 

[Travlyr]

Only fear would suggest that floating currencies were designed specifically to pull the wool over everyone's eyes.

Or facts,

"In the absence of the gold standard, there is no way to protect savings from confiscation through inflation. There is no safe store of value. If there were, the government would have to make its holding illegal, as was done in the case of gold. The financial policy of the welfare state requires that there be no way for the owners of wealth to protect themselves. This is the shabby secret of the welfare statists' tirades against gold. Deficit spending is simply a scheme for the 'hidden' confiscation of wealth. Gold stands in the way of this insidious process. It stands as a protector of property rights." - Alan Greenspan, Gold and Economic Freedom

"By this means government may secretly and unobserved, confiscate the wealth of the people, and not one man in a million will detect the theft." - Lord John Maynard Keynes, "Economic Consequences of Peace"

"Banking was conceived in iniquity and born in sin. Bankers own the Earth. Take it away from them but leave them the power to create money, and, with the flick of a pen, they will create enough money to buy it back again. Take this great power away from them and all great fortunes like mine will disappear and they ought to disappear, for then this would be a better and happier world to live in. But, if you want to continue to be the slave of the bankers and pay the cost of your own slavery, then let the bankers continue to create money and control credit." - Sir Josiah Stamp, President, Bank of England (2nd richest man in England)

Seriously, Daddy Warbucks, AKA Paul Warburg, and his family have made out like bandits because that's what they are.

 

[Kelly.]

inflation used to mean the physical printing of currency, today it means the rise in prices

 

[Seraphim]

Oh, it still means expanding the currency supply - just because deluded twits are deluded, it does not change reality.

inflation used to mean the physical printing of currency, today it means the rise in prices

 

[CogWheeler]

Or facts,



Seriously, Daddy Warbucks, AKA Paul Warburg, and his family have made out like bandits because that's what they are.

Pretty extraneous pile O’quotes, there. Greenspan was an exercise in Hayek gone bad. The "I think I've found a flaw" part. I spend my time cursing bankers up and down, and frequently use the T. Jefferson "inflate, and deflate" quote. You don’t need to lay that stuff on the choir.

If Keynes said that, it must be the "fact" that proves you right. That so? Inflation redistributes wealth. Yup, that's a fact. I know it, and look forward to paying my 1-3%, every year. I wouldn’t call it “theft”. I know it buys us innovation, I know through that comes employment, and I know that without it, a gun (or even two) won't stop an angry mob from eventually coming for my hoard.

The Fed has been commandeered by the banks in the past 15 years, or so. “Taking the punch bowl away” and “crowding out” have given way to insidious measures such as “QE”. Even if that spares us the decimation of the fractional reserve system through deflation, it comes at a cost that destroys the incentive to save. That’s the line, in my mind, we must not cross again. Greenspan welcomed these guys (ala Hayek). So, I don’t see the effect you are trying to have with his “welfare state” quote. His policies enhanced the welfare of those I see you most critical of. They were Socialism in another direction.

But this stuff about gold? I don’t see Steve Forbes, for example, as a “welfare” kind of guy. No, he’s on the opposite side of all of this. His views of a gold standard are born of advantage, in the polar opposite way that a welfare statist might see things. He’s the hawk to the statist’s dove, and this is why he also endlessly shills for a strong dollar. The point is neither extreme should have exclusive monetary authority. And, yes, a gold standard does eventually give authority to a specific bound class. History proves this, too.

But, hey, thanks for dropping all those quotes.

 

[Paul Or Nothing II]

...your cynicism can be cut with a knife. Only fear would suggest that floating currencies were designed specifically to pull the wool over everyone's eyes.

Inflation happens with either type of currency, accept carrying gold around would just make it get out of control. There is no answer to how we change what is fundamentally the earth's 20 meter cube of gold. And cars, please? Need more money to grow your business, or economy? Tough luck. Get on line. The price just keeps going up. Corporate dynasties would love it, too, if prices went down for everything, accept, of course, their accumulated gold. "Corporations are people, my friend". Once the game of monopoly ends with a gold standard, the rest of us and especially the young, are just squirrels, fighting for a nugget.

Seriously, Travlyr, how do we know you aren't a "shill" for those who already possess the most of what would, quite favorably, convert into a slice of that big, finite yellow block? It would only be fair for their children too, as their parents earned it. Correct? I mean, what right should the children of the less privileged have to work hard and get something for it, when we can just pre-ordain the whole show for them, with gold? Its as if the education of the industrialist age escapes you.

This is just some counter-point, that borrows its tone from, well, you.

Come on, man! I've replied to your "need more money to grow business" comment in the thread you've created :

http://www.ronpaulforums.com/showthread.php?359470-End-The-Fed-WHY&p=4159288&viewfull=1#post4159288

There's hardly "less currency to buy labor", NOMINAL numbers may go down but as supply of goods & services increases in relation to "money" (whatever it may be), every unit of money can buy more goods & services. And you don't buy labor with "money" as such but with goods & services (that's why employers have to raise wages in relation to inflation) so NOMINAL wages would go down but REAL wages would still be stable & may be even going up depending on supply & demand factors since government & banks wouldn't be able to siphon off their purchasing-power.

Moreover, as supply of goods & services increases, & thereby purchasing-power of every unit of "money" goes up, that is, every ounce of gold buys more goods & services, it would automatically incentivize minors to mine more to capture the increased difference between the lowered cost of production & sale-price of every ounce of gold until a time no such incentive is present as the supply of gold increases.

About the question of "what about Travlyr & all the corporations already holding gold" -

First thing first, gold can't be created out of thin air & in the long-run, its price is much closely linked to its cost of production which limits production as compared to fiat-money where currency only has value because government says so And the problem is that it's monopolistic system where some people, government/banks, are given a monopoly over it & they can create as much as they want of it & thereby steal purchasing-power from the rest of the people whereas in case of gold, if you've produced enough capital to buy mines, you can get into mining as well

Now, about those who already have gold - the question is can they create it out of thin air? - NO, even mining has cost of production so you only get the margin, just as any other business - So if they can't create it out of thin air then they'll have to spend & invest what they have & hence, the existing gold WILL circulate through the economy to produce more goods & services (REAL WEALTH), not to mention they'll have to SPEND it to buy goods & services they need so over time, in the long-run, gold will naturally follow those who are producing goods & services but again, nobody can just create huge amounts of it very quickly like fiat-money where Fed can essentially "create" unlimited amounts of "money" with a few clicks on their computers

The problem is that like too many mainstream "economists" you're too focused on "money" but that's not as essential as people think when it comes to macro-economics, in fact, it's the GOODS & SERVICES (real wealth) that's important so long as there are people saving & investing & thereby making "money" available to producers to produce the economy WILL GROW because growth of moneysupply doesn't equal "growing economy" (Zimbabwe anyone ), "growing economy" should necessarily mean growing supply of goods & services because it's the goods & services that people desire & that's what creates prosperity & raises living-standards of people

 

[Travlyr]

Pretty extraneous pile O’quotes, there. Greenspan was an exercise in Hayek gone bad. The "I think I've found a flaw" part. I spend my time cursing bankers up and down, and frequently use the T. Jefferson "inflate, and deflate" quote. You don’t need to lay that stuff on the choir.

If Keynes said that, it must be the "fact" that proves you right. That so? Inflation redistributes wealth. Yup, that's a fact. I know it, and look forward to paying my 1-3%, every year. I wouldn’t call it “theft”. I know it buys us innovation, I know through that comes employment, and I know that without it, a gun (or even two) won't stop an angry mob from eventually coming for my hoard.

The Fed has been commandeered by the banks in the past 15 years, or so. “Taking the punch bowl away” and “crowding out” have given way to insidious measures such as “QE”. Even if that spares us the decimation of the fractional reserve system through deflation, it comes at a cost that destroys the incentive to save. That’s the line, in my mind, we must not cross again. Greenspan welcomed these guys (ala Hayek). So, I don’t see the effect you are trying to have with his “welfare state” quote. His policies enhanced the welfare of those I see you most critical of. They were Socialism in another direction.

But this stuff about gold? I don’t see Steve Forbes, for example, as a “welfare” kind of guy. No, he’s on the opposite side of all of this. His views of a gold standard are born of advantage, in the polar opposite way that a welfare statist might see things. He’s the hawk to the statist’s dove, and this is why he also endlessly shills for a strong dollar. The point is neither extreme should have exclusive monetary authority. And, yes, a gold standard does eventually give authority to a specific bound class. History proves this, too.

But, hey, thanks for dropping all those quotes.

What part of sound money doesn't make sense to you?

Most people who have commented on this paragraph today indicated that they understand this,

Sound Money: Commodities. All sound money is mined, grown, or sewn and become valuable through honest efforts of producers. Gold, silver, oil, and other resources are mined and have real value. Grains, livestock, cotton, linen, hemp, etc. are all grown and have real value. Cars, electronics, houses, toys, etc. are all sewn and have real value. Paper money is 100% redeemable. For example, an Eagle paper gold certificate can be exchanged for a pure gold Eagle ... 1 for 1.

So, in a system of sound money inflation is regulated by producers. The laws of supply and demand apply for goods and services with money as another valuable commodity. If a manufacturer builds too many cars, or there are too many car manufactures, then they "inflated" society with more cars than needed so the value of cars go down. The same with gold, oil, food, electronics, etc. Inflation is controlled by natural occurrences, efforts of work, and honest exchanges. Sound money creates a self-regulating free-market.

We are not referring to just a gold standard. This is about competing currencies. For instance, if I was a farmer, then I could grow peppers and trade them for silver, or maybe trade them for clothes. If I was a clothes maker, then I could trade my high quality clothes for gold, silver, or I could trade them to the farmer for peppers. If I was a miner, then I could trade the silver that I mine and coin for a new truck, new clothes, or peppers.

Does that make sense?

 

[Diurdi]

common fallacy is that high interest rate means less money supply, not true. Although high interest rate generally discourages loaning, which could mean less money lent and spent.

When the Federal Reserve sells Treasury Bills, that it has previously bought, it increases the interest rate and at the same time removes money from the economy. The sold T-bill will increase the supply of US Bonds on the market which means that the interest rates go higher. The money supply contracts because the dollar payment for the T-bill ceases to exist in the market as it enters the Fed.

Furthermore, due to the Money Multiplier, a decrease in lending will result in less money in the system.


However, in times of great price inflation (often, but not always coupled with money supply increase), the interest rates will also be high to cover both inflation and a risk-premium for the lender.

 

[CogWheeler]

First thing first, gold can't be created out of thin air & in the long-run, its price is much closely linked to its cost of production

You are sounding more like a geologist, than a monetary economist. The idea gold would be produced at parity with economic growth is a stretch. You make a huge leap with that one. And, to suppose that going off to find gold would make up for excess labor? I'm not with you.

 

[Diurdi]

You are sounding more like a geologist, than a monetary economist. The idea gold would be produced at parity with economic growth is a stretch. You make a huge leap with that one. And, to suppose that going off to find gold would make up for excess labor? I'm not with you.

While using fiat instead of gold would definitely save resources (it's not free to dig up gold for currency), the problem comes with that inevitable abuse of the powers a central banker has.

 

[The Gold Standard]

When the Federal Reserve sells Treasury Bills, that it has previously bought, it increases the interest rate and at the same time removes money from the economy. The sold T-bill will increase the supply of US Bonds on the market which means that the interest rates go higher. The money supply contracts because the dollar payment for the T-bill ceases to exist in the market as it enters the Fed.

The supply of money/credit only shrinks by how much money they get when they sell the t-bills. That means if they take a loss that some or most of that money remains of the Fed's balance sheet, and therefore in the credit market. The Fed has been paying top dollar for treasuries. That means if the time comes that they have to sell them to control price inflation they will get killed, because the interest rate on them will skyrocket (meaning the value of them goes down). The same thing with the mortgage backed securities the Fed holds. Unless they manage to get a bubble blown back up in housing, they may not get anything when they try to sell those. That is hundreds of billions if not trillions of dollars that they can't pull out of the system. They have no exit strategy. When banks start lending that money, prices will soar.