[quote]LIFTICVSMAXIMVS wrote:
BB, any amount of inflation is bad for the poor and people on a fixed income who do not make their money from investments. This is the majority of the country. [/quote]
This is most certainly not the majority of the country. Even people with bank accounts are investing (at a very low interest rate, but I guess that’s their choice). People are invested a lot more than that - particularly if you account for indirect investments such as pension funds that provide some of those incomes to retirees.
[quote]LIFTICVSMAXIMVS wrote:
Why should the government be responsible to stimulate entrepreneurship? If there is risk involved don’t you think the signals should remain undistorted? Why can’t banks set their own rates based on their own solvency? Don’t you think that artificially low rates only incentivize bad investment? The bubble has to pop eventually.[/quote]
It’s responsible to avoid disincentivizing risk taking and entrepreneurship.
It’s really a matter of trying to be Goldilocks - too much inflation is bad, and any disinflation is a bad thing (of course, a little is less bad than a lot) - particularly with the way people, as rational economic actors, have oriented their behavior in an environment that has been absent of deflation for several generations.
I read that the Fed’s target rate for annual inflation is about 2% or so - that seems fine to me. They won’t be perfect, but sticking to a target like that gives the same type of discipline as sticking to a commodity-based standard, but allows for flexibility when it’s required to avoid deflation/recession.
Again, look at the history of major panics in the U.S. pre the Federal Reserve. You had currency crises/bank failures (these were often the same thing with private bank notes redeemable for specie functioning as currency), followed by deep recessions.
[quote]LIFTICVSMAXIMVS wrote:
I also think you are only looking at incentive from the producers vantage point. Productions requires consumption. Low prices stimulates consumption which further stimulates demand. High prices and interest rates stimulate saving which lowers interest rates and prices naturally which results to stimulate investment. Banks can figure their own interest rates out.
I disagree that the money supply matters because it always flows at a rate commensurate with a sound pricing structure.[/quote]
Falling prices of finished goods in recessionary environments is a downward spiral - which leads to layoffs, which are bad for consumption/purchasing power.
When the supply of money is based on a commodity, its supply can fluctuate with the price of the commodity - which is not necessarily related to the economy’s need for money.
