🚀 go-pugleaf

In article <1993Jan24.163821.3459@athena.mit.edu> cmk@athena.mit.edu (Charles M Kozierok) writes:
>In article <1993Jan23.183507.28658@csi.uottawa.ca> cbbrowne@csi.uottawa.ca (Christopher Browne) writes:
>>In article <1993Jan23.170436.10269@athena.mit.edu> cmk@athena.mit.edu (Charles M Kozierok) writes:
>>>interest is simply rent for the use of a dollar. if that dollar
>>>will be worth 4 cents less a year from now, then i will include that
>>>amount in the rent i charge. you'll have to explain how it works the
>>>other way around. i don't see it.
>>
>>Supposing the basic interest rate is 4%, and there is no other source
>>of inflation, then it would be rather difficult to have an inflation
>>rate of below 4%, expressed as follows:
>>
>>Holding money costs 4%, and this will encourage the inflation rate to
>>grow toward 4%.
>>
>>The presence of interest WILL result in some inflation.
>
>second, history shows that inflation and interest rates *do* usually
>maintain a gap. your claim that inflation below interest rates
>would be hard to happen is not empirically indicated.

As a bunch of experts have already said, inflation is caused only by
a change in the supply/demand balance for the commodity called money.

Suppose we have a closed system where the inflation rate is zero and
the there is one interest rate of 10%.  In order for you to borrow
money you must expect better than a 10% return.  So you try to set
prices high enough to get it.  If the same product was cheaper
before at a lower interest rate, you are attempting to create
inflation.

But I have money making 10% above inflation.  I like that, and I 
don't need your product right now.  I want to retire rich.  You can't
sell your product.  You go bankrupt.  The economy sinks into 
Depression.  Interest rates go to zero and we have deflation.
I make a huge profit on my bonds, retire, and hire you
occasionally for odd jobs.

Then, of course, the government may stimulate the economy and 
create 10% inflation.  But it could be 5% or 20% also.  There is
no necessary relation between the old interest rate and the new
inflation rate.

In real life those non-scientific economists attempt to manage
the money supply so the cycle is not so extreme.  In real life
you can't raise your prices just because you borrowed expensive
money because someone else with cheaper money will undercut you.
In real life you will simply wait for cheaper money unless you have
a product that would not otherwise exist.  Or you will lose your
investment.
 
	 George Tucker        tucker@shiva.hac.com
	Signature line awaiting FDA approval.