<email@example.com> wrote in message
> mc wrote:
>> And that -- together with similar deflationary cycles every few
>> decades in the 19th century -- was one of the source of the notion
>> that it is inherently evil to be in debt, which is still reverberating
>> among some personal money management gurus. The Great Depression was
>> the last deflationary cycle because we fundamentally changed the way
>> the money supply is controlled. Going back to the gold standard, as
>> some people advocate, would bring back the deflationary cycles.
> What terrifies me is inflationl, esp what we had in the 1980s.
> Inflation is basically a tax, a very unfair tax.
> It discourages savings and encourages wasteful consumption.
> There are many who do like inflation for various selfish reasons
> because their particular segment of the economy is strengthened; but
> at the expense of everyone else.
Right. That, of course, is the case with *unexpected* inflation. If
inflation is expected and fairly constant, interest rates and
long-term plans will incorporate it and people will be back where they
Unexpected inflation makes it easier to buy a house (by paying it off
in smaller dollars) and makes it easier to pay off student loans
(which is probably going to be a big issue in 10 years, when a lot of
the population will be burdened with them).
But it is basically a tax on the *middle* class. The upper class has
investments that are inflation-proof. The lower class doesn't have
savings. Inflation attacks people who are building up savings and are
on the threshold of achieving some financial security.
See Ben Bernanke's book, _Inflation Targeting_. He argues that (1)
there should be measurable goals of monetary policy (so we can tell
whether policies are successful), and controlling inflation is the
most obvious one; (2) deflation is worse than inflation, but neither
is very good; (3) to avoid deflation, and for another reason I'll get
to, the CPI inflation rate should be about 2.5%.
The other reason is that the Consumer Price Index doesn't take account
of shifts in lifestyles. Typically, when some goods become more
expensive while others become cheaper, people change what they buy.
E.g., we now buy a lot more telecommunications, and less fancy
clothing, than people did 50 years ago. The Consumer Price Index does
not take these lifestyle shifts into account, at least not very
rapidly, so Bernanke argues that 2.5% CPI inflation equals no real
rise in cost of living.
This is the first time we've had a Fed chief who came with
documentation, so to speak. Prior to taking office, Bernanke had
already written books saying exactly what he thought out to be done.
I wish all politics worked this way.
ObTelecom: How about an FCC chief?