Ayame wrote:MrBill wrote: so I can only recommend reading Mogambo Guru about inflation. Check him out at dailyreckoning.com or his other haunts.
he has haunts other than the dailyreckoning.com?
Yep you can also find the complete Mogambo Guru HERE
Basically, if you have a healthy economy you do not need inflation to grease the wheels. But when the economy suffers a shock or starts to slow the inclination is to add a little liquidity. A little dab will do you. But unfortunately when you print more money you devalue ALL savings. That may benefit those who have assets that keep their real value, but they can only sell those assets once. For those on fixed incomes and that have no assets that appreciate along with inflation, they are poorer.
One analogy is the debate between old growth lumber and jobs in the forestry industry. Jobs in the forestry industry depend on a constant supply of marketable timber over time. Total allowable cut means you annually harvest trees as fast as they can grow back to maturity. That is the natural carrying capacity of the forest and therefore those jobs.
However, for the greater good of humanity we sometimes set aside old growth, natural forests to protect diversity and the integrity of certain slow growing species of trees. Let us say for argument, 10% or 100.000 hectares out of 1 million hectares. Unfair say some lumberjacks and their communities! We need more jobs. We need to cut those trees down. So they cut the protected area from 100.000 hectares to 50.000 and for a short period of time there are more forestry jobs and everyone is happy. Then they cut the protected acreage from 50.000 to 25.000 and well you get the idea. Pretty soon, there are no protected areas of old growth trees and the whole industry is forced to shed jobs because there can only be enough jobs to match the natural growth rate of trees.
So you can only harvest 1/70th or 1/50th or 1/100th of your acreage per year. That is total allowable cut. Anything more is inflationary, but it is not sustainable. No matter how many 'extra' jobs it creates this year, eventually you will have to return to the long run sustainable average.
The extra growth is an illusion and may be more painful in the end to cut back from 100.000 jobs to 50.000 jobs than if you would have kept it at 50.000 jobs in the first place. Keeping in mind that forestry is a primary industry and secondary and tertiary jobs depend on that reliable, sustainable supply of timber as well. If you expand above the natural carrying capacity of the forest, then those secondary and tertiary jobs will disappear and you will have more economic dislocation than if they would have never been created in the first place.
Another non-monetary economics example would be the Spanish fishing industry. Too many boats, too many fishermen, too many jobs dependent on those fishermen, and TOO FEW FISH! The extra jobs built on those imaginary fish that are not there are inflationary, they are an illusion of more jobs created and faster growth, but ultimately unsustainable.