Which is Better: High or Low Inflation?

It would seem obvious that low inflation is good for consumers, because  costs are not rising faster than their paychecks.  But recently commentators have been saying that “Low inflation introduces uncertainty”. This is nonsense.

Deflation benefits low debt consumers and those on fixed incomes, because they receive a fixed number of dollars but can buy more with each dollar 

During the high inflation “Eighties”  I remember commentators saying “High Inflation introduces uncertainty”. This is not quite true either. The truth is that steady inflation, if it can be relied upon to remain steady, does not introduce uncertainty.  Changing (fluctuating) inflation rates is what introduces uncertainty.

Eliminate Uncertainty

But there is no guarantee that if inflation is high it will not go higher… or lower. So there is the uncertainty. The only sure way to eliminate uncertainty is to have no inflation at all and that can only be accomplished by a “Gold Standard”.

Under a Gold Standard, the government owns a set number of ounces of Gold and issues currency for that amount of money. The only way to increase the money supply is to increase their holdings of Gold. This forces fiscal responsibility on the Government.  [Read more...]

Disinflation – What is it?

Definition of Disinflation

By Tim McMahon

To fully understand disinflation we need to first understand inflation.  The reasons this is trickier than it first appears is because the word inflation is actually used in two different contexts.

The most common usage of the word inflation means rising prices.  Commonly “consumer prices”  so when you go to the gas station or the grocery store and the things you buy cost more than last month (or when it is really bad even more than last week) this is more precisely defined as “price inflation”.

The second meaning of the word inflation is actually the original meaning.  And that is an increase in the money supply that causes “price inflation” and this is called “monetary inflation”. [Read more...]