What happens when speculative bankers create credit by lending? Friedman’s statement on the cause of inflation; “It is always and everywhere a result of too much money, of a more rapid increase of money, than of output" reminds me of bank runs. They happened because promises were not able to be fulfilled due to a more rapid increase of demand for speculative assets, than output. Any way you look at it, it is impossible for the Federal Reserve to increase the money supply beyond the private sector's demand for it. A moderate inflation promotes circulation, punishes those who hoard money by taxing its value.
I initially thought this video would answer a different question: Why do governments seem to be ok with some amount of inflation (even when they are not desperate). For example, the Federal Reserve has an inflation target at 2%. Why not 0%? Anyway, good video.
Inflation stimulate economic activity, because it increases prices, wages, demand, willingness to take up mortgages and willingness to invest in new projects etc. With an inflation rate of 0%, the market wouldnt be "stimulated" enough and economic activity would be low which in turn can have a negative effect on the society as a hole.
Because, otherwise, economic growth would be permanently hindered by deflation. IOW increased M does NOT necessarily cause long-run P increases, as implied here. That's only because of consumption by (presumably) unproductive soldiers in the given example. I'm afraid most of these videos are subtly misleading.
MrMarbles a few things are forgotten in the video. Having a 2% target implies a range of 1 to 3% that is acceptable. If you had a target of 0% you would then have some moments between -1 and 1 %. A certain level of inflation may have some costs but a small level of inflation also promotes more consumption now since people are more tempted to buy something when they know it will be more expensive next year. If on the other hand you had deflation you could wait a little longer to pay less, which leads to less consumption which then leads to less production... I personally think a 1% target would be ok but 0% would be tricky because of the deflation dangers.
So we don't really need inflation. If we let the markets go a little up, a little down, instead of only up. The government is now $30,000,000,000,000.00 in debt and the FED has $9,000,000,000,000.00 on their balance sheet, where does it end? This is the definition of insanity.
Demand increases But the supply remains constant or increases but at a much lower rate as compared to demand this leads to increase in price. Ex:- You have 10 apples each day which you sell to 10 individual at 1apple = $1 But one day an 11th person came and wants an apple won't you raise price of apple's so that you get more profit (Hope this will help)
@@cancelled_user yes ,there are 6 types of inflation 1- Creeping inflation- creeping means slow , the annual growth rate in prices of goods and serv. are 2-3%. 2- Galloping inflation- galloping means Fast , the annual growth rate of prices of goods and serv. are of 8-10% p.a 3-Hyper inflation- its uncontrollable, which totally destroys the currency of the respective country, people in such states hold onto the valuable currencies of other countries. 4- Open inflation- The price increase in this inflation is affected by the market force, this means the goods most demanded . The Supply-Demand Force decide the price of the goods which have less supply and more demand, such cases govt.s are helpless. 5- Suppressed inflation- Govt. can use Fiscal and Monetary policy to control the rise of inflation or increase in prices. 6- Stagflation- a) Persistent Increase in Prices - the economic condition where ONLY PRICE RISE and nothing else, no rise in demand , supply, income, so on. b)- No Jobs- The employment rate is same as before with no increase in goods and serv. and Produce Same rate before the stagflation , No change in manufacture , this leads to decrease in jobs. c)- No Consumer- If individuals have no jobs they will not have money to buy goods and services , this also leads to decrease in consumer purchases for Produced Goods and services and this leads to harm the businesses and closes down many firms. There are cases of inflation- 1) DEMAND PULL INFLATION 2) COST PUSH INFLATION I hope the short description will help you with inflation , now I il answer your question bear with this 1) DEMAND PULL INFLATION - Arises when there is an Excess demand for goods and services but the supply is less and the demand continuous to rise but the supply does not increase in Proportion to demand. causes of DPI- 1. Growth in black money , 2- Increase in Poplulation , 3- iNCREASE IN MONEY SUPPLY , 4- Increase in Disposable income , 5- Increase in Public expenditure (by the govt.). 2) COST PUSH INFLATION- It occurs when Rise in Price is due to a)Rise in Cost Production , b) Demand and Supply Remains Fixed . (all the prices increase which are related to production come under this) causes of CPI ( shortforms are by me ) 1- High Wage Rate- If Rent increases of land the cost of production(cop) increase, if wage of labors increases the cop increases , if Increase in interest on capital borrowed from market , the COP increases , If Organization's Manager of productivity or Producer increases personal profit or commission the Cop Increases , All these leads to increase in prices. 2- High Profit Margin , 3- High Taxes , 4- Fall in the availability of goods, 5- High Price Fixed by Govt. . As you can see , the Demand Pull Inflation is The prices increases due to limited supply of demanded goods or the supply is less in proportion to demand rate of consumers , and Wage Push Inflation comes under Cost Push Inflation(High wage rate) where the prices of Goods and services are affected or increased by the Rise in wages of labors so the cost of production increases hence increase in Price. ( The firms sort of push their responsibilities on consumers and they have to bear the increase in prices ). I hope things are little bit clear for you now. (rip my fingers :' ,PS. I didn't copy paste this from any sites. )
Someone years ago in this comment section said the Feds goal is to cause inflation every year. So if the Feds goal is inflation - then inflation ocurrs no matter what and there is no real cause, correct?
I graduated from Economics but now I understand all the concept well from this channel. Looks like my Indian teachers who could not speak well English was to blame. :D
how about doing episodes on small business, startups next time? You guys are great. Loved this channel. Nice information and attractive way of presenting them.
P only "catches up" in this example because of consumption by unproductive soldiers. It certainly is not an inevitable long-run consequence of increased M, as implied here.
1:40 classic textbook definition of correlation doesn't imply causation. The money supply can increase but prices can also either increase, decrease, or stabilize.
7:10 Is it more correct to say "MONEY SUPPLY to stimulate economy activities (to increase Y) is liken to drug" than to say "Inflation is liken to drug"?
I find it really interesting how the going strategy of governments is to stay on a stable inflation rate. I guess it stabilizes the economy, but it could be used as a reactive force to stabilize it further. Like using deflation when the economy is expected to boom, avoiding a potential recession from following it.
Okay, answer me this! Who or what raises the price because as I see it, how does anything goes up for the exception of volume, the price of goods goes up on it's on?
The more money present in the economy, the less purchasing power it has. If a retailer knows that the the wages of his customers have doubled then he will put the prices up of his products. Look at the price of a rent in New York vs Kentucky. This price hike has a knock on effect.
In the meantime, high inflation wrecks serious havoc on WE the people and the economy because we can't keep up with it (like we're starting to see now.) Then when responsible leadership returns to the whitehouse etc (hopefully 2024) a bit more pain because now the economy has to be fixed and inflation/stagflation brought under control.
"Why do some governments create inflation?" What do you mean, *some* governments? I believe most governments create inflation, although most of those don't engage in hyperinflation.
@@cancelled_user Well, inflation does erode the cost of debt, government or otherwise, over time. This is why more people go into debt when inflation is occurring. But I'm not sure I can say that that's the main reason governments do it, although it's undoubtedly one of the reasons.
@@macsnafu OK, thanks. I already asked on Quora :D www.quora.com/Is-it-true-that-the-main-reason-why-governments-create-and-maintain-inflation-is-to-erode-the-cost-of-their-own-debt-over-time
@@cancelled_user Ah, there was a good response on Quora. It's a way for government to spend more money without increasing taxes. That would seem to be the main reason.
This is all well and good but it doesn't really explain the gradual inflation that always seems to exist in my country (Australia). Is it strictly a low-key tax on savings? I suppose it does incentivise the rich to invest rather than just hold onto their money, which may be a good thing for the economy. I'm unsure that that's their motivation though.
I think you failed to mention possibly a very important factor as in people are unwilling to spend under deflation as they expect prices to fall reducing incentives to spend like in Japan this is possibly another factor for government created inflation
Any way you look at it, it is impossible for the Federal Reserve to increase the money supply beyond the private sector's demand for it. A moderate inflation promotes circulation, punishes those who hoard money by taxing its value.
Did you answer the question of why inflation eases unemployment (like you said about the 70s, until it didn't any more?) Is it somewhere in the series that I missed?
There's a reason why those types of currency are a thing of the past. In the case of commodity money, it's wildly inefficient; in the case of metal money, the amount of currency in circulation is too restricted by the ability to mine those metals, not to mention that a hundred dollars worth of metal would weight much more than a hundred dollar bill.
Hyperinflation is caused by government money printing in a large majority of cases. ALSO, people living on fixed income get hit the hardest because they don’t get a “raise” when costs go up like the people working or running businesses do. So when a government has a significant population subsisting on government funded entitlements those people begin the event with hope due to a promise of entitlement increase only to see it lag behind the real increasing costs.
What will happen if along with printing more money, the government also imposes price control so that no one can increase the prices of the goods as well as the wages? In that case, the backer can back more goods, the tailor can hire more people and create more cloths, and their earning will grow not from the increase in price but the increase in sales. Under this new scenario, the only thing the backers, carpenters, and tailors will need to do to increase their wealth is putting in extra efforts to produce more so as to satisfy the increased demand for their goods/services. Can the vicious cycle of inflation be broken by doing this?
M stands for the amount of money supply in circulation, V is the velocity of money circulating in the economy, P is the price level of goods and services and Y is the real value of total goods and services transacted
Smashinbedrock Hey, Ben Bernanke said the gold standard was responsible for the Great Depression. And since he was the chairman of the Federal Reserve he has to be right.
the economy would grow slower but there would also be no recessions. if you really think about it, money supply is just a tool for the powerful that probably does more harm than it does do good in the long run. also if the rest of us would increase the money supply he would go to jail. in a perfect world, should state and money be separated?
Umar Virk What? The biggest boom in American history is the Industrial Revolution. And that was on a gold standard. Also I 100% disagree when you say the economy is better off since Nixon illegally removed us from the gold standard. Since 1971 we’ve lost well over half of our purchasing power, real wages have either been stagnant or have been going down, and there’s a recession every 10 years or so and each one is worse than the last. I’m not gonna lie and say the gold standard doesn’t have some problems like you mentioned, deflation, but I’d rather have mild deflation and mild inflation every once in a while than banks conjuring billions into existence every year with bank credit or the fed printing billions every year.
Umar Virk Well of course the monetary system itself wasn’t responsible for the industrial revolution. But I’m saying under a gold standard it’s entirely possible to have a massive boom. Plus you have the added bonus of not relying on a central doing too much or too little to prevent a recession from getting worse. The Great Depression was caused by the Federal Reserve letting the money supply shrink by almost 30%. So it didn’t really have anything to do with the monetary system but instead central bank mismanagement. Plus I’m not saying that under a gold standard there isn’t a need for something like the FDIC. The economy looks like it’s doing well on the surface but if you dig deeper you see the problems. Like how interest rates are far too low, we’re 22 trillion dollars in debt which was financed by 2 year treasury bills that are now majority owned by the Chinese, the Saudis, and a few others. So no matter what happens now at this point, the dollar as it stands can never make a comeback, it will either stay where it is or continue to be debased.
The price of the clothes innitially increases not because it costs more to make it, but ONLY because more people want it...so basically it's greed...that is a flawed model. Everything should stay constant....inflation is a way to keep the poor POOR...because you tell them you increase their wages so they can afford the basics...but you go behind their backs and increase the prices of the basics...then they right where they started. This is the model that keeps the rich richer and the poor poorer nomatter how they increase their income
So Muabe's problem was that he printed money and gave to workers/public and lacked price control, when he should have given to the banks like they have done in the US, UK and EU, kept taxes low, came up with some Frank Dodd law and had IOERs to ensure liquidity in the system remained low?
now id like to see a ML model to control the issue.. would be very intersting! if it does exist, it must cost peoples' data privacy right? and all store need to share their price DB to government.. now it sounds like China 😅..
Only if abused repeatedly. Like stated in the video it might be used as a short term medicine to economic trouble, much like morphine is still in use to ease the pain for patients after surgery. Foregoing painkillers entirely is just ridiculous. Abuse will however lead to severe problems dependency and withdrawal symptoms, here we have your opioid epidemic as seen in the US today.
Okay. How long would you suggest is "too long" for govt to be stimulating (inflating) the economy? I ask because govt did it for more than a decade in the great depression & the nation's economy came back on it's own after WWII. And now it's almost been almost 9yrs since the housing collapse and the economy is still struggling.with unemployment near great depression levels.
Oh no, I agree. It has undeniably been too long in the US. They should have reimbursed the savings of citizens up to a point and dropped the reckless investment banks that thought themselves too big to fail like a hot brick and bitten the full bullet of market forces instead of the half-measure they opted for. My reponse was mainly to say that stimulus, just like drugs, aren't necessarily bad so long as it doesn't become a pathological response to all problems faced in life.
_"I ask because govt did it for more than a decade in the great depression & the nation's economy came back on it's own after WWII."_ Yeah, Hitler solved the Great Depression, in a way. The whole world needed rebuilding, and the USA was one of the few places where the factories hadn't been bombed to rubble.
What you showed at 2:27 was NOT that printing more "money" causes inflation, but rather people BUYING more products which create conditions where a seller may CHOOSE to raise their prices. There is no necessary reason why a seller "must" raise prices. Inflation then is merely a choice, not an inevitability. Second, most "money" is not printed as you know. The vast majority of "money" is created by the process of Fractional Reserve Banking when banks make loans. Third, even when that "money" be it printed by the Treasury or conjured into existence by the Central Bank or magically "created" by local banks enters "the economy", there is no way for the dollar bills in your pocket to know when that new “money” actually arrives. The bills in your pocket don't say " *_Hey Fred...I just got a message that more money was printed, you should run out and buy shit before it gets too expensive_* " No one knows how much money is being printed, or conjured, or magically created. The only thing a seller can know is how many people are actually BUYING their products. What if all that "printed" money is instead SAVED in a bank, or put under a mattress instead of spent? Then that new money has no effect on prices at all! Inflation is a choice, a bidding war between buyer and seller and prices are determined by what a seller can get away with AND the buyer is willing to pay. If the buyer does not agree to the price, nothing gets sold and the price must come down if the seller wants to sell.
persephoneheart Shortages and drops in quality of goods and services. Also, black market appears to satisfy the demand. One of the biggest problems with the black market is violence(illegal narcotics are a good example of this). There are also problems with dubious quality of the goods and services traded in black markets and fraud.
Can you please answer my questions 1.Can the government just print money without any gains2 2.How is more money printed in a year?Do they print in according tho the product produce in a year(GDP). 3.Do the federal reserve print more money out of the interest gain and from taxes they gain?
If all people knew this stuff, could the busyness cycle be smoothed out even more? Maybe if all people understood how this works, when they were told by the central bank that the money supply was going to shrink, the prices would start to fall sooner. Wouldn't that be a good thing? Or would self interest (if I lower the price first, and my neighbor doesn't, he'll earn more profit than me), prevent this from happening anyway, making prices to fall only when people start to suffer the real losses?
Only described a runaway inflation scenario. Note how production and employment can rise with targeted inflation. As long as printed dollars are being used to create production from unused resources, then you can even print without causing inflation.
I notice how when they speak about hyperinflation they always use Zimbabwe as the prime example. What about countries like Hungary who had a higher inflation problem than Zimbabwe? Or Yugoslavia, Germany or Argentina or currently happening (as of right now) Venuzuela?
I guess that it's an example that brings up the point nicely. Yugoslavia in the first half of the 90's can be used to explain some other stuff. Mainly, hyperinflation was used to filter German marks for the ruling oligarchy and Slobodan Milosevic. He amassed more than 1 billion marks that way.
Perhaps people forgot about Hungary because it’s not recent but then, right, why don’t people use Venezuela? Maybe because contemporary cases are always politicized and attract hostility? I’m just speculating but I think you’re right, people should use Hungary more because the inflation rate is more spectacular, and Venezuela precisely because it is contemporary.
Stimulus in Australia never created any inflation Germany caused hyperinflation to screw the French and British on reparations It was a deliberate act. Venezuela has had drought, oil price destroyed and an economic war with the US since 2002. Most people cite countries that have hyperinflation as if they have some clue of what they are talking about - they dont.
Technically in the case of Germany it was done to fund strikes in the Ruhr (which had to hand out its output to France as reparations, which the workers refused to do).
So you didn't explain how government just prints money and gives it to people devalues the dollar. It MAY be put back into the economy if that person chooses but it devalued money already in the economy.
Except the big thing that's ignored is that prices are not forced to rise, people who have control over items decide how much or how little something costs, in turn causing inflation. We could literally pay each person $10k a month while also forcing prices to remain stagnant on everything, because there's no law saying prices HAVE to go up. The issue is that people believe it should go up if more people have more money, in turn causing a vicious cycle that's never ending because people are deciding to do this, not the government, not some supernatural being in the sky, people are. Hell, let's go a little less and pay each person $5k a month, enough to pay for rent/mortgage, food, bills, and anything else. That's $60k a year, just reaching the middle class level in this day and age. Then have all countries agree to stop raising prices for the next decade, forcing it to remain the same price, chances are things aren't going to change in terms of property and goods, but it will reduce homelessness and starvation, because at the end of the day, production remains the same and goods and services remain a constant, but if the prices stop rising, that stops pushing people into poverty, and since wages have been stagnant for the last 30 years, it's time to switch it up and force prices to stagnate for a while.
That’ll cause the same problems rent control causes. As in business owners won’t be able to raise/lower prices whenever they feel necessary, so that will cause a supply shock or a shortage.
The U.S. government does not increase or decrease the money supply. 100% of all inflation within the U.S. is the product of banks generating credit as loans and deposits. The supply of actual money is determined by depositor demand for the monetary medium and is not a factor in inflationary credit creation by the banks. Actual money is defined/designated by 31 USC 5103.
Naw I understand why the coffee taste bad at the Truck stop, the truck stop has to buy the cheapest coffee too meet the demand of the product , in order not too boost the price UP due to inflation 😉
what an amazing explanation with very attractive and understandable graphics! Even a child can understand this concept by watching this!
Me a child a yes I am a boy of economics.
What happens when speculative bankers create credit by lending?
Friedman’s statement on the cause of inflation; “It is always and everywhere a result of too much money, of a more rapid increase of money, than of output" reminds me of bank runs. They happened because promises were not able to be fulfilled due to a more rapid increase of demand for speculative assets, than output. Any way you look at it, it is impossible for the Federal Reserve to increase the money supply beyond the private sector's demand for it. A moderate inflation promotes circulation, punishes those who hoard money by taxing its value.
for a macroeconomic video. this channel is the best. so crazily good. i love it😁
This channel deserves millions of subscribers.
I initially thought this video would answer a different question: Why do governments seem to be ok with some amount of inflation (even when they are not desperate). For example, the Federal Reserve has an inflation target at 2%. Why not 0%? Anyway, good video.
Inflation stimulate economic activity, because it increases prices, wages, demand, willingness to take up mortgages and willingness to invest in new projects etc. With an inflation rate of 0%, the market wouldnt be "stimulated" enough and economic activity would be low which in turn can have a negative effect on the society as a hole.
MrMarbles,
That's a good suggestion! We should cover that.
-Roman
A low level of inflation is a string that Central Banks can pull on when needed.
Because, otherwise, economic growth would be permanently hindered by deflation. IOW increased M does NOT necessarily cause long-run P increases, as implied here. That's only because of consumption by (presumably) unproductive soldiers in the given example.
I'm afraid most of these videos are subtly misleading.
MrMarbles a few things are forgotten in the video. Having a 2% target implies a range of 1 to 3% that is acceptable. If you had a target of 0% you would then have some moments between -1 and 1 %. A certain level of inflation may have some costs but a small level of inflation also promotes more consumption now since people are more tempted to buy something when they know it will be more expensive next year. If on the other hand you had deflation you could wait a little longer to pay less, which leads to less consumption which then leads to less production... I personally think a 1% target would be ok but 0% would be tricky because of the deflation dangers.
So we don't really need inflation. If we let the markets go a little up, a little down, instead of only up. The government is now $30,000,000,000,000.00 in debt and the FED has $9,000,000,000,000.00 on their balance sheet, where does it end? This is the definition of insanity.
God what an amazing channel i love your videos please make more!
2:43 Why?
3:12 Why?
3:18 Why?
Demand increases
But the supply remains constant or increases but at a much lower rate as compared to demand this leads to increase in price.
Ex:- You have 10 apples each day which you sell to 10 individual at 1apple = $1
But one day an 11th person came and wants an apple won't you raise price of apple's so that you get more profit
(Hope this will help)
if you keep selling cheap stuff. you will go bankrupt
this example is of Demand pull inflation.
@@Hereforthekettle How does it differ from wage push inflation? And are there some other types/causes of inflation?
@@cancelled_user yes ,there are 6 types of inflation
1- Creeping inflation- creeping means slow , the annual growth rate in prices of goods and serv. are 2-3%.
2- Galloping inflation- galloping means Fast , the annual growth rate of prices of goods and serv. are of 8-10% p.a
3-Hyper inflation- its uncontrollable, which totally destroys the currency of the respective country, people in such states hold onto the valuable currencies of other countries.
4- Open inflation- The price increase in this inflation is affected by the market force, this means the goods most demanded . The Supply-Demand Force decide the price of the goods which have less supply and more demand, such cases govt.s are helpless.
5- Suppressed inflation- Govt. can use Fiscal and Monetary policy to control the rise of inflation or increase in prices.
6- Stagflation- a) Persistent Increase in Prices - the economic condition where ONLY PRICE RISE and nothing else, no rise in demand , supply, income, so on.
b)- No Jobs- The employment rate is same as before with no increase in goods and serv. and Produce Same rate before the stagflation , No change in manufacture , this leads to decrease in jobs.
c)- No Consumer- If individuals have no jobs they will not have money to buy goods and services , this also leads to decrease in consumer purchases for Produced Goods and services and this leads to harm the businesses and closes down many firms.
There are cases of inflation- 1) DEMAND PULL INFLATION 2) COST PUSH INFLATION
I hope the short description will help you with inflation , now I il answer your question bear with this
1) DEMAND PULL INFLATION - Arises when there is an Excess demand for goods and services but the supply is less and the demand continuous to rise but the supply does not increase in Proportion to demand.
causes of DPI- 1. Growth in black money , 2- Increase in Poplulation , 3- iNCREASE IN MONEY SUPPLY , 4- Increase in Disposable income , 5- Increase in Public expenditure (by the govt.).
2) COST PUSH INFLATION- It occurs when Rise in Price is due to a)Rise in Cost Production , b) Demand and Supply Remains Fixed . (all the prices increase which are related to production come under this)
causes of CPI ( shortforms are by me ) 1- High Wage Rate- If Rent increases of land the cost of production(cop) increase, if wage of labors increases the cop increases , if Increase in interest on capital borrowed from market , the COP increases , If Organization's Manager of productivity or Producer increases personal profit or commission the Cop Increases , All these leads to increase in prices.
2- High Profit Margin , 3- High Taxes , 4- Fall in the availability of goods, 5- High Price Fixed by Govt. .
As you can see , the Demand Pull Inflation is The prices increases due to limited supply of demanded goods or the supply is less in proportion to demand rate of consumers , and
Wage Push Inflation comes under Cost Push Inflation(High wage rate) where the prices of Goods and services are affected or increased by the Rise in wages of labors so the cost of production increases hence increase in Price. ( The firms sort of push their responsibilities on consumers and they have to bear the increase in prices ).
I hope things are little bit clear for you now. (rip my fingers :' ,PS. I didn't copy paste this from any sites. )
Thanks for the video, I always struggle when explaining inflation for people who ask about. Will definitely be showing this video for them!
Money supply and the circular flow of income. Really helpful for A level economics thanks!
Straight theft, absolutely disgusting. People should be held accountable for this!
Someone years ago in this comment section said the Feds goal is to cause inflation every year.
So if the Feds goal is inflation - then inflation ocurrs no matter what and there is no real cause, correct?
Your videos are just one of the best ❤
Fantastic and simple elaboration 🙏
Thank you sir..
I graduated from Economics but now I understand all the concept well from this channel. Looks like my Indian teachers who could not speak well English was to blame. :D
You guys are so good
Thank you so much for great learning experience... love u team ❤️
Thank you for the kind words!
-Roman
Great education
What effects demonetization has on economy ?
are u thinking same as me about modi govt?
Deflation
Reveals black money
Thats why its important to sit next to the source
In reality, people use new printed money to buy real estate and listed company shares
how about doing episodes on small business, startups next time?
You guys are great. Loved this channel.
Nice information and attractive way of presenting them.
a superb video
Love the use of DNB at 7:10
What is V? You refer to a previous video, but it’s hard to determine which from your playlist.
Start here: th-cam.com/video/q59tZKP0HME/w-d-xo.html
-Roman
P only "catches up" in this example because of consumption by unproductive soldiers. It certainly is not an inevitable long-run consequence of increased M, as implied here.
So, given trillions of dollars of worldwide QE since the great recession... where's the inflation? Great video, many thanks.
1:40 classic textbook definition of correlation doesn't imply causation. The money supply can increase but prices can also either increase, decrease, or stabilize.
I really wanted him to say "the baker, the tailor, the candle stick maker."
7:10 Is it more correct to say "MONEY SUPPLY to stimulate economy activities (to increase Y) is liken to drug" than to say "Inflation is liken to drug"?
Nice explained video
I find it really interesting how the going strategy of governments is to stay on a stable inflation rate. I guess it stabilizes the economy, but it could be used as a reactive force to stabilize it further. Like using deflation when the economy is expected to boom, avoiding a potential recession from following it.
Thank you for the knowledge.
Okay, answer me this! Who or what raises the price because as I see it, how does anything goes up for the exception of volume, the price of goods goes up on it's on?
The more money present in the economy, the less purchasing power it has. If a retailer knows that the the wages of his customers have doubled then he will put the prices up of his products. Look at the price of a rent in New York vs Kentucky. This price hike has a knock on effect.
Why can't currency reset to one is to one ratio like 1$=1£.?
Your videos are so beautifully explained. Thanks a million!! :D
What is exactly short and long run. Is it as same as in a production company no right. Can u explain this in details pls
What about QE?
I have to say though, this video is very good and is easy to understand
Amazing channel for understanding economics🌹🌹
Thank you!
-Roman
In the meantime, high inflation wrecks serious havoc on WE the people and the economy because we can't keep up with it (like we're starting to see now.) Then when responsible leadership returns to the whitehouse etc (hopefully 2024) a bit more pain because now the economy has to be fixed and inflation/stagflation brought under control.
"Why do some governments create inflation?" What do you mean, *some* governments? I believe most governments create inflation, although most of those don't engage in hyperinflation.
Nearly all governments aim for inflation, but only a bit of inflation.
I've read somewhere that the MAIN reason why governments create inflation is that it erodes the cost of the government's debt over time. Is it true?
@@cancelled_user Well, inflation does erode the cost of debt, government or otherwise, over time. This is why more people go into debt when inflation is occurring. But I'm not sure I can say that that's the main reason governments do it, although it's undoubtedly one of the reasons.
@@macsnafu OK, thanks.
I already asked on Quora :D
www.quora.com/Is-it-true-that-the-main-reason-why-governments-create-and-maintain-inflation-is-to-erode-the-cost-of-their-own-debt-over-time
@@cancelled_user Ah, there was a good response on Quora. It's a way for government to spend more money without increasing taxes. That would seem to be the main reason.
Very good material. Subscribed :)
So when did inflation become "a thing"? Was there ever a long period of time when the price of everything wasn't trending upward?
This is all well and good but it doesn't really explain the gradual inflation that always seems to exist in my country (Australia). Is it strictly a low-key tax on savings? I suppose it does incentivise the rich to invest rather than just hold onto their money, which may be a good thing for the economy. I'm unsure that that's their motivation though.
Australia a high tax country , why I push up prices because government increasing regulations & taxes
wow i really i liked this videos,beautifully Explained :D
good analogies
I think you failed to mention possibly a very important factor as in people are unwilling to spend under deflation as they expect prices to fall reducing incentives to spend like in Japan this is possibly another factor for government created inflation
Can governments deflate as well? E.g., tax its people and then burn the money instead of spending it?
Which animation software do you use???
Any way you look at it, it is impossible for the Federal Reserve to increase the money supply beyond the private sector's demand for it. A moderate inflation promotes circulation, punishes those who hoard money by taxing its value.
You are really great .
Did you answer the question of why inflation eases unemployment (like you said about the 70s, until it didn't any more?) Is it somewhere in the series that I missed?
But then how to increase Real GDP without high inflation ?
Well explained
Why don’t the world switch from paper currency to metal or commodity?
There's a reason why those types of currency are a thing of the past. In the case of commodity money, it's wildly inefficient; in the case of metal money, the amount of currency in circulation is too restricted by the ability to mine those metals, not to mention that a hundred dollars worth of metal would weight much more than a hundred dollar bill.
So...in summary...economies are cursed because of greed.
Hyperinflation is caused by government money printing in a large majority of cases. ALSO, people living on fixed income get hit the hardest because they don’t get a “raise” when costs go up like the people working or running businesses do. So when a government has a significant population subsisting on government funded entitlements those people begin the event with hope due to a promise of entitlement increase only to see it lag behind the real increasing costs.
How can this be solved
Nice
What will happen if along with printing more money, the government also imposes price control so that no one can increase the prices of the goods as well as the wages? In that case, the backer can back more goods, the tailor can hire more people and create more cloths, and their earning will grow not from the increase in price but the increase in sales. Under this new scenario, the only thing the backers, carpenters, and tailors will need to do to increase their wealth is putting in extra efforts to produce more so as to satisfy the increased demand for their goods/services. Can the vicious cycle of inflation be broken by doing this?
Can you explain what V and Y are?
M stands for the amount of money supply in circulation, V is the velocity of money circulating in the economy, P is the price level of goods and services and Y is the real value of total goods and services transacted
Thank you!
What if the money supply was fixed never increasing or decreasing?
Smashinbedrock
Hey, Ben Bernanke said the gold standard was responsible for the Great Depression. And since he was the chairman of the Federal Reserve he has to be right.
the economy would grow slower but there would also be no recessions. if you really think about it, money supply is just a tool for the powerful that probably does more harm than it does do good in the long run. also if the rest of us would increase the money supply he would go to jail. in a perfect world, should state and money be separated?
Umar Virk
People mine gold at around the same rate they make babies. So even under a gold standard the supply of money isn’t a fixed pie.
Umar Virk
What? The biggest boom in American history is the Industrial Revolution. And that was on a gold standard. Also I 100% disagree when you say the economy is better off since Nixon illegally removed us from the gold standard. Since 1971 we’ve lost well over half of our purchasing power, real wages have either been stagnant or have been going down, and there’s a recession every 10 years or so and each one is worse than the last. I’m not gonna lie and say the gold standard doesn’t have some problems like you mentioned, deflation, but I’d rather have mild deflation and mild inflation every once in a while than banks conjuring billions into existence every year with bank credit or the fed printing billions every year.
Umar Virk
Well of course the monetary system itself wasn’t responsible for the industrial revolution. But I’m saying under a gold standard it’s entirely possible to have a massive boom. Plus you have the added bonus of not relying on a central doing too much or too little to prevent a recession from getting worse. The Great Depression was caused by the Federal Reserve letting the money supply shrink by almost 30%. So it didn’t really have anything to do with the monetary system but instead central bank mismanagement. Plus I’m not saying that under a gold standard there isn’t a need for something like the FDIC. The economy looks like it’s doing well on the surface but if you dig deeper you see the problems. Like how interest rates are far too low, we’re 22 trillion dollars in debt which was financed by 2 year treasury bills that are now majority owned by the Chinese, the Saudis, and a few others. So no matter what happens now at this point, the dollar as it stands can never make a comeback, it will either stay where it is or continue to be debased.
so what happens if we eliminate paper currency and return to gold silver currency
We have an Econ Duel on that topic: th-cam.com/video/FbDZ0ObRXfE/w-d-xo.html
-Roman
Marginal Revolution University
The inflation would occur whenever more gold or silver would be discovered, or when the government decides to debase the coinage.
The price of the clothes innitially increases not because it costs more to make it, but ONLY because more people want it...so basically it's greed...that is a flawed model. Everything should stay constant....inflation is a way to keep the poor POOR...because you tell them you increase their wages so they can afford the basics...but you go behind their backs and increase the prices of the basics...then they right where they started. This is the model that keeps the rich richer and the poor poorer nomatter how they increase their income
It cost more to make idiot
Great video. Terrible tie knot lol
Thanks sir you made me full
Why does bread price go up?
So Muabe's problem was that he printed money and gave to workers/public and lacked price control, when he should have given to the banks like they have done in the US, UK and EU, kept taxes low, came up with some Frank Dodd law and had IOERs to ensure liquidity in the system remained low?
This.is.why.every government print their own paper.money.
This is why an annual inflation rate of ~2% is actually considered good.
now id like to see a ML model to control the issue.. would be very intersting! if it does exist, it must cost peoples' data privacy right? and all store need to share their price DB to government.. now it sounds like China 😅..
This video helps why tourism is a big thing for a country.
*BOTTOM LINE:*
7:09 So govt induced inflation is like an illegal drug & since illegal drugs are bad, govt "stimulus" is bad!
Only if abused repeatedly. Like stated in the video it might be used as a short term medicine to economic trouble, much like morphine is still in use to ease the pain for patients after surgery. Foregoing painkillers entirely is just ridiculous.
Abuse will however lead to severe problems dependency and withdrawal symptoms, here we have your opioid epidemic as seen in the US today.
Okay. How long would you suggest is "too long" for govt to be stimulating (inflating) the economy?
I ask because govt did it for more than a decade in the great depression & the nation's economy came back on it's own after WWII. And now it's almost been almost 9yrs since the housing collapse and the economy is still struggling.with unemployment near great depression levels.
Oh no, I agree. It has undeniably been too long in the US. They should have reimbursed the savings of citizens up to a point and dropped the reckless investment banks that thought themselves too big to fail like a hot brick and bitten the full bullet of market forces instead of the half-measure they opted for.
My reponse was mainly to say that stimulus, just like drugs, aren't necessarily bad so long as it doesn't become a pathological response to all problems faced in life.
:i-doubt, that-your-metaphor-is-accurate. :illegal-drugs-are-not-bad-by-necessity. :take-weed, is-it-bad-by-itself-in-its-natural-form? :what-is-bad, is, if-it-is-fertilized-with-chemicals, which-rather-happens, when-people, who-wanna-be-"antis", use-it, than-if-it-was-legal and appreciated-as-what-it-is, a-herb/stimulant, that-by-itself-causes-less-harm-than-exemplum-gratia: alcohol-use, a-legal-drug.
_"I ask because govt did it for more than a decade in the great depression & the nation's economy came back on it's own after WWII."_
Yeah, Hitler solved the Great Depression, in a way. The whole world needed rebuilding, and the USA was one of the few places where the factories hadn't been bombed to rubble.
Very Well explained.
I've seen a 206% increase in business costs over the span of about 1y6m (Apr-2020 - 02-Nov-2021).
What you showed at 2:27 was NOT that printing more "money" causes inflation, but rather people BUYING more products which create conditions where a seller may CHOOSE to raise their prices.
There is no necessary reason why a seller "must" raise prices.
Inflation then is merely a choice, not an inevitability.
Second, most "money" is not printed as you know. The vast majority of "money" is created by the process of Fractional Reserve Banking when banks make loans. Third, even when that "money" be it printed by the Treasury or conjured into existence by the Central Bank or magically "created" by local banks enters "the economy", there is no way for the dollar bills in your pocket to know when that new “money” actually arrives. The bills in your pocket don't say " *_Hey Fred...I just got a message that more money was printed, you should run out and buy shit before it gets too expensive_* " No one knows how much money is being printed, or conjured, or magically created.
The only thing a seller can know is how many people are actually BUYING their products. What if all that "printed" money is instead SAVED in a bank, or put under a mattress instead of spent?
Then that new money has no effect on prices at all!
Inflation is a choice, a bidding war between buyer and seller and prices are determined by what a seller can get away with AND the buyer is willing to pay. If the buyer does not agree to the price, nothing gets sold and the price must come down if the seller wants to sell.
Why is inflation bad for people? Is it because the printed money not getting equally distributed?
If that is the case then why not set prices on products to correlate with the cost of making the product? Would that solve that problem?
Inflation is often described as a general rise in prices, so the costs of making products also rise.
GrimFaceHunter but if prices were fixed then production prices would be fixed to
persephoneheart Price fixing creates more and bigger problems than it solves.
The best course is not to have government intervention.
GrimFaceHunter what are some problems it causes?
persephoneheart Shortages and drops in quality of goods and services. Also, black market appears to satisfy the demand. One of the biggest problems with the black market is violence(illegal narcotics are a good example of this). There are also problems with dubious quality of the goods and services traded in black markets and fraud.
doesn't government push up business costs with more regulations and taxes ? why consumers are charged more
Reason #1, the create inflation to inflate away debt.
By causing more debt
Can you please answer my questions
1.Can the government just print money without any gains2
2.How is more money printed in a year?Do they print in according tho the product produce in a year(GDP).
3.Do the federal reserve print more money out of the interest gain and from taxes they gain?
If all people knew this stuff, could the busyness cycle be smoothed out even more? Maybe if all people understood how this works, when they were told by the central bank that the money supply was going to shrink, the prices would start to fall sooner. Wouldn't that be a good thing? Or would self interest (if I lower the price first, and my neighbor doesn't, he'll earn more profit than me), prevent this from happening anyway, making prices to fall only when people start to suffer the real losses?
5 years ago but very relevant today !
Only described a runaway inflation scenario. Note how production and employment can rise with targeted inflation. As long as printed dollars are being used to create production from unused resources, then you can even print without causing inflation.
I notice how when they speak about hyperinflation they always use Zimbabwe as the prime example. What about countries like Hungary who had a higher inflation problem than Zimbabwe? Or Yugoslavia, Germany or Argentina or currently happening (as of right now) Venuzuela?
I guess that it's an example that brings up the point nicely. Yugoslavia in the first half of the 90's can be used to explain some other stuff. Mainly, hyperinflation was used to filter German marks for the ruling oligarchy and Slobodan Milosevic. He amassed more than 1 billion marks that way.
Perhaps people forgot about Hungary because it’s not recent but then, right, why don’t people use Venezuela? Maybe because contemporary cases are always politicized and attract hostility? I’m just speculating but I think you’re right, people should use Hungary more because the inflation rate is more spectacular, and Venezuela precisely because it is contemporary.
Stimulus in Australia never created any inflation
Germany caused hyperinflation to screw the French and British on reparations
It was a deliberate act.
Venezuela has had drought, oil price destroyed and an economic war with the US since 2002.
Most people cite countries that have hyperinflation as if they have some clue of what they are talking about - they dont.
Technically in the case of Germany it was done to fund strikes in the Ruhr (which had to hand out its output to France as reparations, which the workers refused to do).
Welcome to 2020, ladies and gentlemen!
That can't possibly be sustainable. What happens when the value of a dollar is so low that its not valuable anymore? What does the government do then?
So you didn't explain how government just prints money and gives it to people devalues the dollar. It MAY be put back into the economy if that person chooses but it devalued money already in the economy.
Imagine credit card companies making a fortune just on interest alone!
But how many people default on them and don't repay the money...
Except the big thing that's ignored is that prices are not forced to rise, people who have control over items decide how much or how little something costs, in turn causing inflation. We could literally pay each person $10k a month while also forcing prices to remain stagnant on everything, because there's no law saying prices HAVE to go up. The issue is that people believe it should go up if more people have more money, in turn causing a vicious cycle that's never ending because people are deciding to do this, not the government, not some supernatural being in the sky, people are. Hell, let's go a little less and pay each person $5k a month, enough to pay for rent/mortgage, food, bills, and anything else. That's $60k a year, just reaching the middle class level in this day and age. Then have all countries agree to stop raising prices for the next decade, forcing it to remain the same price, chances are things aren't going to change in terms of property and goods, but it will reduce homelessness and starvation, because at the end of the day, production remains the same and goods and services remain a constant, but if the prices stop rising, that stops pushing people into poverty, and since wages have been stagnant for the last 30 years, it's time to switch it up and force prices to stagnate for a while.
Government pushes up business costs retard that socalism policy. Our business broken even last 4 yrs net profit not increased
Then have the goverment set inflation and prices for goods
That’ll cause the same problems rent control causes. As in business owners won’t be able to raise/lower prices whenever they feel necessary, so that will cause a supply shock or a shortage.
Wouldn't it be a sort of a centrally planned economy? From what I know, it's never a good idea.
Thank you for providing us with knowledge!
Is there anyone else watching this in 2021? In the era of "transitory inflation"? 😂
The U.S. government does not increase or decrease the money supply. 100% of all inflation within the U.S. is the product of banks generating credit as loans and deposits. The supply of actual money is determined by depositor demand for the monetary medium and is not a factor in inflationary credit creation by the banks. Actual money is defined/designated by 31 USC 5103.
awesome
Corporation costs go up the pass onto franchise = consumer pays more
LOVE THISS
Naw I understand why the coffee taste bad at the Truck stop, the truck stop has to buy the cheapest coffee too meet the demand of the product , in order not too boost the price UP due to inflation 😉
That’s exactly the reason why gold was money.
This is not actually correct, the velocity of he money is NOT constant, it increases too when printing money!, that creates more inflation