"inflation for dummies" or "does inflation matter in the long run?" 
13.12.11, 08:20 - Dies und Das
a spector is haunting Europe, no not the commies, but


well, 1st of all i am in my deepest inside the opinion that inflation is not something very desirable. not because it is hurting the economy in whole, but the weak participants in special.

inflation occurs on unexpected output.

the "goal" of the European Cenatral Bank is to keep the inflation stabil.

if an economy is "better" than expected it raises inflation.
the central bank has the opportinity to regulate this by raising or lowering th interest rate ('i'). if they notice an upcomming output gap (a surpisingly good economic development), they throttle down economy by raising i.
and versa: if they notice a depression, they lower the interest rate, like you would pour oil in a fire.

now what are the consequences after, in lets say 2 years?
if the pricelevel raises, the rental fees will rise, all men will earn more, etcetc...
so after some time nothing changed in the real income, only the nominal value changed.

do you see the mistake in my sentence? .... the period... the effects are lagged and till the workership notices they need more money, time will pass. this is a renvenue for big firms and the govenment (the debits and the wages are nominal values ;-) ).

so if the ecb states to have an inflation target below 2%, this is for protecting the "small people".

you may insert, that (regarding the phillips curve) a little inflation is good against unemployment. but remember: when you know about the extended phillips curve, its pointless, even more: dangerous (see: stagflation) and if you take a closer look at lucas' critique, you notice that using simple rules to steer an economy will never work. like bob marley sang "you can fool some people sometime, but you can't fool all the people all the time"

What shall we do now?

do not touch the fiscal policy
stating that the centralbank serves the people and not viceversa will not help to lower governmental debts or unemployment. its the simple truth that the ammount of money is only influencing the nominal values, not the real ones. neither unemployment nor growth.

the ec and the euro zone face the handicap that the single countries have different traditional economies and policies. until this problem is not solved i demand to split up the euro zone again. all attempts to keep this system alive will result in even deeper miseries. greece is not able to get on his feeds w/o the support of its citizens. the rest of the euro zone and especially germany has no right to dictate new rules to the proud greece people, who did what they were told to the last decades, what is now told to be wrong (or bad when you read german newspapers).

the Écu was a good idea, like "Hey lets marry to save taxes". but you cannot marry without living together. (unless you need to marry to get the right of residence :-D )

1st think, then act.
this saves a lot, believe me.

please comment


9.8.12, 10:00
ein buch zum thema :)

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