Over the past two years, every country in the industrialized world has been printing money like mad. Japan’s actions yesterday -- in which it directly intervened in the currency markets by issuing yen and buying dollars -- were particularly brazen, but ultimately just more of the same.
“But where’s the price inflation?” asks, among others, interventionists of the Paul Krugman type, who believe that Obama’s and Bernanke’s greatest faults were that they haven’t printed nearly enough.
The answer is that inflation is here … though it’s often difficult for average people to perceive.
The negative effects of inflation on the economy from the Federal Reserve’s monetary policy of quantitative easing has exploded the currency supply and lowered the average American’s standard of living. But where are the negative effects of inflation showing up in the real world? Likely in the prices of your food and other consumable goods.
As the Federal Reserve has failed with quantitative easing it has led other central banks to competitively devalue their currencies. Bloomberg reports that on 15 September 2010 that for the first time since 2004 the Japanese central bank has begun intervening in the currency markets to manipulate the Yen’s value lower.
But for Japan to be successful with their goals they will need to continue intervening because other central banks will be carrying out similar monetary policy. Just look at India with its rupee down but GDP growing extremely fast. But to do so they will be fighting against economic law. Ultimately, they will fail.
NEGATIVE EFFECTS OF INFLATION ON ECONOMY
Many economists do not have a solid definition for inflation. The traditional definition and that primarily used by the Austrian school of economics is that inflation is an increase in the currency supply and deflation is a decrease in the currency supply. Many court economists, particularly from the Keynesian school, like to define inflation as a rise in prices.
But a rise in prices is merely a symptom of inflation much like wet streets are a symptom of rain. But to confuse wet streets for rain is to confuse cause and effect. But these court economists confuse lots of things; particularly their students. Are we in inflation or deflation? But the average person is beginning to feel the negative effects of inflation on the economy in their own life. Commodities are approaching record high prices and these costs are filtering through to consumable goods.
An example would be orange juice. Tropicana has recently changed their 64 ounce container to a 59 ounce container but there has been no corresponding decrease in price. When asked why the customer service representative responded, “Our consumer research shows that most shoppers, when given a choice between a price increase or slightly less contents, prefer to hold the line on prices.”
Because wages have not increased approximately 10% therefore the volume decrease of 8% lowers the standard of living for the average American. Show me the beef! A lower standard of living is one of many negative effects of inflation to individuals in the economy.
A decrease of about 8% seems to be low. For example, 7-Up decreased their bottle from 20 ounces to 16.9 ounces, or 15.5% decrease, and Scott toilet paper decreased the width of a roll from 4.5 inches to 4.125 inches or about 8.3%.
Ttrace made a video presentation on the subject that can be viewed here.