Interest policies to face inflation

Some wise economists derived that inflation occurs due to the excess of money flow in the market and similarly when the money flow is low deflation occurs. I actually read this in one of the many courses that I took. Well I took many courses but did not pass many because I writing pace is very slow. In the time specified for writing a 100 marks theory paper, I could only write 50 marks tops. I was saying that money flow in the market is described as the factor of inflation and deflation. But let’s take this theory to a practical circumstance and analyze it.

If in a country people have no cash, bank balance or any assurance from the third party that they will clear up their debt, will they get stuffs for free around that country? Well this may sound stupid, but here I’m actually following our theory that inflation or deflation, i.e. - the purchasing power of money is dependent upon the total flow of money in the market. So, if the market has say zero money flow, does that mean that the purchasing power of money would extremely high to the point of infinity and almost no money could buy enough stuff?

Still don’t get the stupidity of the theory? Let me put it in a simple way. Flow of money means all the medium of purchase, namely cash, bank balance and also credit. Technically cash and bank balance is created via credit. Your government or your apex bank, may it be named national, central or reserve bank gives assurance for the cash or bank balance you’re using. Ever read the legal notice in your currency bill? Previously it used to say that the United States will on demand return the worth of your currency bill in gold. Now it just states that the bill is a legal tender for debts and receivables. In banking terms this is called a promissory note that is issued by the government promising to pay the specified sum whenever you demand it. So, every currency bill or coins you are using, from now on bear in mind that you are using the assurance of your government. If your government’s credibility were to go down you will only have a piece of paper that wouldn’t be worth anything.

So, economists are trying to make us believe that US government were to increase the flow of money by giving more such assurances, then the purchasing power of the money will go on declining meaning the products in your supermarket will be expensive. Don’t just think that you have understood it all. The government issuing more money in the market means that people who want that money will have to pay for it as interest. There would always be a cost to that money/assurance that you are using whether you are paying it or somebody else. Now you know it all that you need to know. Now tell me, if the government decreases the interest rate on that assurance/money, and so causing more people to take that as debt and ultimately increasing the flow of money in the market higher, will the products in your supermarket goes expensive? I don’t think so.

Whatever the economy be, the price of a product is dependent upon some factors, none of which in any way relates to the increased flow of money in the market or the decreased interest rate for that money. We have to see it clearly that the money we are speaking about is not a product in itself, but just a means to exchange products. Yes the increase in means to purchase a product might affect the psychology of the customer. But it is not the customer who increases the price, but the seller who does so in essence. And the seller have distinct factors to cause him to increase the price of a product, the availability of means with his customer is not one of them.

Alternately, if we assume that the person taking the debt from the government in a decreased interest cost is seller, then it is crystal clear that the increase in the flow of money is going to diminish his financial costs of operations and so his products might actually be even cheaper. Why don’t economists think in this line?

The main factors that I mentioned above as actually responsible for the increase in price of a product is two sided that I’ve mentioned a lot previously, and I’m going to describe it again here.

In one side, the inflation is triggered. Inflation is triggered due to some reasons, none of which are economic. The main among them I think is the monopolistic nature of a product. When an individual is selling some unique stuff that couldn’t be replaced by another product, like petrol, and if it such happens that only he is selling that stuff, then sooner or later he is going to realize that he can charge higher for the product with decreasing the volume of his sales. And so he could increase his total revenue than he will do it. You might say that even petrol like products don’t have a unique seller, so inflation could not be triggered this way. But that’s why, my friends they are forming cartels of common industry so that they could control the price of their product. And even governments don’t object as long as they are getting higher and higher taxes as their share in crime.

On the other side, or maybe we should say another level, when a product becomes unreasonably expensive, then the consumer of that product or the producer of any other product who uses that initial product in his production process could not find it in his budget to afford for that expensive product. So, the primary consumers will react. They will increase the price of whatever they are selling (product or service). They will have to do so even if they face the disadvantage of competition because otherwise they are surely at loss. And even the primary consumers will be able to bear the burden of that highly expensive product by making their own product more expensive. This cycle goes on. This shift in the market price is inflation. It goes on until the cycle reaches to such a consumer who could not actually adjust themselves with the shift in the market price. Why you ask? Because they are the one with the product/service of poor bargaining power and they become the one who has to bear the whole weight of the inflation. Our labor force is the example of such poor bargaining power who always suffer whenever a cartel of industry is formed to control the price of the product that industry is producing.

So, I want to tell the economists lets speak the truth and don’t fear to teach the real economics. Because then somebody may actually invent a system that is far more better than our current system of market.

We are here to criticize. We are Gentle Critics.