Why do we have inflation. Who causes it? Is somebody greedy?

70 years ago prices never varied.

Answer:
Prices have NEVER stayed the same.

We have inflation because markets for individual products or services cause pressure on others according to their successes or failures.

It is the nature of capitalism. It is a part of the genius of humans that they created a market out of the conduct of the market itself!! You can make money out of predicting how much money others will lose!

Inflation is a mechanism that allows the capitalistic market to both breathe and flourish.

Don't moan about it...we all voted for it!
Its when demand outstrips supply. And yes, its caused by us being greedy for everything - housing, oil, consumer goods.
We have inflation because the general price level rises in the economy. Nobody gains from inflation.

It's caused when the price of goods rises and the output of goods in the economy decreases. Also it's caused by the incresase of money supply in the economy.

It can be shown in this equation. %change in velocity is zero (constant).

%Change of Money supply + %Change of Velocity of money = %change in the Price of goods + %change in the Quantity of goods
Probably the largest factor is Goverment and Local Councils spending tax payers money on schemes ( Many of which are unnecessary ) in which the costs always exceed their budgets.
Hence ever increasing Income Tax, Council Tax, etc.,
Leading to a demand for higher wages by workers. An increase in prices of goods and services to satisfy the employers and Fat cats in the boardrooms.
Leading year on year to goverment spending . . . . ad infinitum.
Prices throughout history have always varied, depending on a number of factors.

Inflation occurs when the amount of money in circulation grows more rapidly than the output of the economy. The main drivers of of inflation are the Federal Reserve and banks. The Federal Reserve regulates the required reserves banks must have, and so can control how much credit there is in the economy.

Banks all keep only a portion of their deposits on hand, and lend the rest out to borrowers. These borrowers then take the money and either spend it or deposit it in their own accounts. So apart from the amount that is currently either in transit or is kept on hand by businesses and individuals, it all goes back into banks.

Then the bank takes the money and loans it out again (except for the required reserve ratio, or sometimes more).

The Treasury (or the central bank, depending on country) manages the actual printing of money. One of the most common sources of inflation is the overproduction of nominal money, which rapidly loses its value once people realize what the government is doing. Some governments try to stay ahead of this curve by printing yet more money, and this results in the "hyper-inflation" that we have seen in many countries, including South America.

This process has been going on for hundreds of years, ever since the concept of banking took off. There are many things that can drive inflation. A flood of new money into the market from the government, a reduction in the required reserve rate on banks, or a change in the amount of available goods can all impact prices.

Spain in the late Renaissance is a great example of inflation caused by external forces. With more gold coming in from the New World, merchants raised their prices rapidly to keep pace with the increased amount of gold flooding the market.

Deflation can also occur in economies, although in the modern era this has been more rare. During the industrial revolution, once factories began mass-producing goods that had previously been made by hand, the price of these goods declined steeply. Prices for other items whose production couldn't be automated did not drop, and there was economic dielocation as jobs and whole industries were rendered obsolete.

So inflation is not a new phenomenon, and it can be caused by any of a multitude of factors.
greediness
PART 1:
Contrary to what is taught in schools, general inflation is caused by too much money being injected into the economy by the federal reserve banks.

How do they do this?

Well, the most recent example in the USA is the housing boom. Interest rates were set low, by the FED. Borrowers were incouraged to re-finance existing loans, or buy newer houses. Money was injected into the banking system as people applied for loans, and housing prices started to climb because money was so easy to obtain for qualified home buyers.

Local governments around the country raised property tax valuations on property.
All the money coming into the economy spilled over to the general economy causing prices to climb on everything. Currently we are in the early stages of a bust cycle, where prices have gone so high on houses, many people are having a hard time meeting very high mortgage payments.

This same cycle happened in Japan in about 1990 and the whole country is still in recovery mode.

PART 2:
Again, contrary to what is taught in American schools, the USA had little or 'NO' inflation under the Gold standard, for about ""130"" years. The USA enjoyed mostly growth & prosperity under the Gold system. Examples: The gay 1890's & the roaring 1920's.

Our forefathers very wisely specified in the Constitution that nothing but Gold & Silver will be used as money.
Because they realized governments will 'ALWAYS' abuse the power of unbacked paper money by over printing it for different causes. A housing boom, a war effort, a dot.com boom, etc. etc.
Lots of money injected into a system makes the general voting public temporarly happy and everyone falls into the inflation trap.

Ron Paul wants to return America to a time when there was 'NO' inflation by going back on the Gold standard and I for one support him 100%!

Imagine your property taxes 'NEVER' rising again, I wonder if you can?

Thank you for the question.
******************************...
The Federal Reserve is the cause of Inflation. We had deflation in prices all throughout history until the start of Central Banking in the early 1900s.

While I could explain how this scam works, I think this documentary can do it better.

http://video.google.com/url?docid=-46621...

If you want to get rid of the Inflation Tax and the Federal Reserve that causes it, you'll probably want to support Ron Paul for president as he's the only candidate against this scam.

http://ronpaul2008.com

The answers post by the user, for information only, FunQA.com does not guarantee the right.



More Questions and Answers:
  • Is Robert Rubin right?
  • If consumer tastes for home school education increases over time there will be:?
  • What are the impacts of globalization?
  • If everyone threw out pennies and never spent them how would this effect the economy?
  • Why has the US dollar depreciated so dramatically over the past couple years vs the Canadian dollar?
  • What would YOU do to improve the economy? Take this question in the direction of YOUR choice. Be thorough.?
  • U.S. should boycott the Beijing Olympics??
  • What is the role of "LIC" in the devolepment of indian economy?
  • Ron Paul? Does anyone know details about his plans for American?