July 15, 2010
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Economics blog for the day
Actually it will probably be the only economics blog I do all month.
The keyword today is inflation, if the money supply goes up, inflation goes up, and prices go up. If the money supply goes down, inflation goes down, and prices go down. Inflation means prices go up, deflation means prices go down.
So, doing some research I found that it usually takes two years from the time the money supply changes to the time it affects prices. That means if the money supply grew a lot two years ago, we will start to see inflation now.
Well, guess what happened two years ago, this month? The money supply started growing drastically. (You can find it here: http://www.federalreserve.gov/releases/h6/hist/h6hist1.txt from the official source, look at around July 2008). July 2008 is when the Federal Reserve started bailing out banks. (You can see that dramatically illustrated at the Wall Street Journal: http://blogs.wsj.com/economics/2010/06/15/a-look-inside-the-feds-balance-sheet-2/tab/interactive/).
I don’t know how much inflation we are looking at, but if it is a direct relationship, we can look at 15% to 20% increases in prices over the next two years. Maybe less, maybe more: hard to say.
Comments (2)
-__-..I find economics very confusing, haha. For some reason I always though inflation was bad because of how the German money was worth almost nothing post WWII. But then my mom tried to explain to me how deflation was bad, and I’m pretty sure I’m still clueless about it. D:
That’s cool how it takes a while for the effects to be felt though.
@phosphor_stars -
lol yeah, actually both are bad, because they both make it hard to predict how much your money is going to be worth tomorrow. No one will want to borrow/lend if they don’t know how much they will have to pay back (or get paid back).
It isn’t the end of the world, people will still find a way, it’s just annoying.