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Inflation Key to the Recession Cycle

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Inflation is the other half of recession; but inflation and recession coincide there is economic disaster. The problem is complex, but not overly complex. If the study of the economy is science, which it is, then Einstein's idea of science should be followed: keep simple, but not overly simple.

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Inflation
Of all economic illnesses, inflation is as important as the idea of recession, and is closely related.

Classical inflation
Banks, especially the Federal Reserve, try to control inflation by limiting the cash supply; they starve the economy to send prices down. Inflation is ultimately created in this universally accepted equation, with the formula of introducing more cash to the money supply by lowering interest rates. Cash in introduced into the economy with cheap credit by the Federal Reserve to stimulates the economy, but also causes inflation. When inflation rises, cash is restricted to starve the economy.

What causes inflation?
So, in this scheme in our nation, what causes inflation? The increase of cash by offering cheaper credit.

Even from the "classical" economics perspective of the "free economy," there is holism, or perhaps whole-ism. We live in a single unit, a closed cell or whole system, perhaps even a permanent bubble if we believe in the boom and bust model of the bulls and bears. And it is optionally a fishbowl if we choose, but I choose not.

Thinman.com > Rattlesnake

Federal Reserve and its only tool: interest rates
My main issue with this "classical" approach is that the "guiding" bank has only one tool with which to help the economy: national currency loan interest rates. What should be a smoothly running machine continually breaks down, and the guiding institution is always powerless to help. At that point the government steps in and creates stimulus packages that I think of as "welfare for the rich."

My view is very different
My view of inflation is very different from the Federal Reserve's, and it is purely based on observation and common business behaviors:

Inflation as the inverse of traffic congestion
I see inflation as the opposite of automobile congestion on super highways; traffic slows because someone hits the brakes. If no one hits the brakes, traffic flows smoothly. This is most obvious on big highways in areas between cities when traffic should flow freely but slows for no reason. As a trucker I observed traffic congestion problems every day, and I saw this and other interesting phenomena such as the creation of congestion "waves," which follow predictable laws of physics but are caused purely by poor driving.

How inflation starts

Inflation starts when someone, or some company, raises prices more than the others do; he wants more money, and he figures he can get it. He gets greedy; and his competitors see him do it and they figure they can do it as well. Competition between business should prevent this, but the businessmen get greedy; they often make arrangements between themselves to keep the prices high: price fixing. Price fixing is illegal, but it happens all the time and honest politicians are usually powerless to stop it.

Furthermore the guiding bank, the Federal Reserve, has supported the idea of corporate mergers so much that there has been a ten times decrease in competition, and a parallel ten times increase in CEO salaries. The government is then charged with control, what is called governance, and corporations attempt self-governance that is called "global citizenship," but is really the most obscene example of elitism.

Most members of the opednews.com community are leaning towards socialism in that they support government controls over corporations. They cite "corporate liberalism" as the source of our present economic disasters, and they call for high-level participation by the government in all matters financial, as the representative of "the people." I find difficulty with this model because the controlling institution, by law, is the Federal Reserve is a private bank, and it seems powerless to help, and eager to hurt.

Somehow, I oddly still support a free economy that is ruthlessly competitive between corporations where the primary government tool to steady the economy by preventing inflation is to completely outlaw gouging and price fixing: long jail sentences and perhaps even capital punishment for the crimes of capital.

 

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