1. Is inflation good for business?
So we have already gone over inflation along with the cause and impact it has not only the
economy but more on the average person. People will often try to argue in favor of the federal
reserve either due to a lack of knowledge or due to being misguided. Many people will say that
having a centralized banking system with one entity controlling it allows us to control interests
rates which is good for business.
The way this is supposed to work is simple in the fact that the Federal Reserve will through
either the US Treasury or private banks will print money and then give out loans. These loans
will often be low or nearly zero interests in times where they feel stimulation is needed. This is
supposed to create more borrowing by making it so banks will give out loans with lower interests
to business especially small to medium sized. While in theory this all sounds good like many
other things in reality it doesn't work nearly as well.
The reason why is simply because like we have discussed before when to much money is
printed the value of it goes does which causes creation. This in turn weakens the value of the
currency. With less value to the money it is harder for people to accumulate wealth so people
are less able to buy things which means less profit for business. So in the end even if
business's can get low interest loans from banks to expand it does very little if they have less
and less customers who can afford their products.
We have seen this since the recession which has been hitting the USA for the last few years.
For years now the Federal Reserve has kept interest rates at record low rates in an attempt to
help stimulate recovery. Despite this the USA has seen very little in the way of real growth or
improvement with most estimates showing a growth rate of less then three percent for the
economy. So the short answer is that no inflation is not good for business or for anyone. With
less inflation more people could afford to buy products and services. The argument that keeping
interests rates low is clearly not true as well.
If it was profitable for banks to adjust interest rates then they will adjust it to lower levels
accordingly which is profitable. But the system of artificially trying to create a borrowing market
with no customers clearly will not work. Although the Fed has reported that they will continue to
keep interests rates at record term lows for a long time to come even they cannot explain why
we haven't seen a real recovery or growth yet.
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