How is it possible that our government can create trillions of dollars and not cause strong inflationary pressures on the economy? Moreover, how can some officials claim that our country may come under severe deflation in spite of the immense amount of new money manufactured by the FED? The US economy is undergoing some strange gyrations that are unfamiliar to most observers and, subsequently, it appears there is a wide divergence of opinion as to the direction of our country.
Inflation comes as a result of putting too much money into the economy. In essence, it is the consequence of too much money chasing too few goods. No one can question there has been a massive injection of dollars, but there is negligible inflation according to our government. One reason for this anomaly may be the fact that few of these newly minted dollars are reaching the consumer. Most of the money has gone to failing financial institutions and was largely used to pay their old debts which insured the viability of wealthy investors. Therefore, there is no new economic activity that can spike inflation rates. Suffice it to say the average taxpayer will pay a hefty price for their compulsory participation in this scheme to save the wealthy from their poor investment decisions.
Deflation is the effect of too few dollars chasing too many goods. In this situation, prices decline due to an oversupply of goods in the market place. The housing crisis is an excellent example of deflation in the US economy. There is a case for declining prices in other areas as well. For instance, productive capacity in the USA and the world continues to increase even as wages decrease and jobs are eliminated. In other words, more products are being created, but there is a reduced capacity to purchase the increased supply. This is a recipe for massive deflation if the trend persists.
At the core of the inflation-deflation argument is the worker/consumer who has been left out of the current economic equation. Inflation or deflation will come proportional to the ability of the average person to participate in the economy. Deny too many people a job or a living wage in an environment of increased productivity and deflation is the logical conclusion. Alternatively, inflation will inevitably develop in a full employment economy when the Fed is loose with its money making policy.
Our inept leaders are charged with the responsibility of determining our nation’s economic future. Is it any wonder the USA finds itself in the current dilemma? Our future will continue to be clouded until those in control understand economic policy must be made to benefit all Americans and not just a handful of wealthy elitists.