A PRIMER ON INFLATION FOR DUMMIES

Written by Fernando Milanés

12 de enero de 2022

The reduction in the purchasing power of a currency. Inflation has historically occurred when a country prints too much of its currency in too short a period of time. Central banks attempt to control inflation by raising interest rates when necessary, which decreases the amount of money in circulation. Inflation is inevitable whenever wealth is created, but central banks attempt to keep it between 2% and 3% whenever possible.

The governments spoke person and the media repeated the “lie” of the week that claimed existing price increases was a sign of an excellent economy where citizens had much more money to spend, thus demand provoked the increase in prices. 

Of course that is not how the offer/demand equation works!  

  Increase demand increases supply. No sane merchant tries to decrease demand by raising prices.   

Economic inflation is caused and controlled by the money supply.   

Our Federal Reserve, a theoretical independent, and in my judgment worthless, group is responsible to keep the value of our currency in check, and adjusted to the circumstances.    Because of the pandemic, interest rates were reduced and currency printed to keep up with our government’s distribution of dollars.

   Since the World money markets stopped buying our bonds, the geniuses of the Fed started purchasing them by printing more money.    What is causing our increase in prices is due at the dollar purchasing power diminishing.

   The solution is to reduce the amount of currency circulating and increase its value by higher interest rates.   This sole action will return our currency to be purchased by other countries, and our citizens returning available dollars (to be burned) by receiving an appropriate return in money markets and CD’s.

   There will be temporary pain, but with the revival of our economy by less taxes and regulations, inflation would be defeated. 

  Presidents of both Party’s (Kennedy, Clinton, Reagan and Trump) did so with positive results, to the chagrin of Socialists that continue to claim otherwise!

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