Question about inflation?
How do the governments and banks control inflation? What causes inflation? Are interest rates related to inflation or deflation? Someone was telling me that governments exchanges say canadian dollars for indian currency and then wait for their currency to rise and then tthey exchange it back? How does this cause inflation or deflation?
When there is more demand than supply is there a surplus or a defecit?
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Okay, so the key to understanding inflation deflation and and currency trade is all understanding that money itself is a simple product which follows all of the same laws of supply and demand as any other product in a global economy. So okay… the more demand for money there is for a given amount of money (and it is NOT bottomless) the more that money is worth. Contrary wise, if there is just tons and tons of the stuff around, it becomes worth less per unit. Same as peanuts or hard drives or chocolate bars. So… If you take the current economy, we are actually awash in money… Why are we all broke then? That’s a matter of distribution of wealth. We have but TRILLIONS of dollars back in to the "system" that makes them worth less. The trick to all of this is in the timing. It doesn;t make them worth less RIGHT AWAY. it takes a minute to work its way through the system. Actually it takes about a million minutes (2 years). During that time, the theory is that it will stimulate spending and production… But what a gamble… We just about added a third to our money supply… What that means is… unless the FED starts pulling chips in the form of VERY HIGH interest rates (which is the valve on the pipe) in about two years, our money is going to be worth only 2/3s of its current buying power. So your Two dollar Starbucks just became a 3 dollar Starbucks, and your $4 a gallon gas just became $6 a gallon… And THAT is what we call inflation.
modern business no longer uses supply and demand for pricing…it calculates how much they want to make and charge accordingly…for example…the less gas you use the more the gas companies are going to charge you…..waste is the greatest factor in lowering energy prices…..the more you use something the less it costs….every time energy efficient stuff comes out the price of the gas and electric goes up
Inflation has not gone up this past year that is why interest rates have stayed low. This is also why Social Security has not gotten a boost in rates because it is linked to inflation.