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The consequences of inflation: where is the end point or what an unbridled process can lead to

The consequences of inflation: where is the end point or what an unbridled process can lead to

Surely many people know what inflation is. Everyone has heard about her:

  • falling purchasing power
  • uncertainty in the economy
  • damage to savings
  • deterioration of business conditions

But where is the end point of this bad process?

Prices are rising, and that's okay. They are always growing, and so what?

A little reasoning - to understand the truth!

There is a reason that the constant fight against inflation has been on the agenda lately.

Many of the world's central banks have rushed to raise interest rates in order to curb it in their countries.

The increase in interest rates, as we know, is aimed at stimulating demand for domestic currency, i.e. savings, and reducing, due to this, commodity demand, which in itself contributes to a drop in prices.

In this case, the consequences are clear for economics. This is a drop in demand for goods and expensive loans, slowing it down. And as a result, the natural finish is what to pay people for when there is no development and, accordingly, no income either. Not an option for the happy life of large masses of the population!

Well, what happens if you don't stop inflation!

What can an uncontrollable and unbridled inflationary process ultimately lead to?

Prices are rising and, of course, the solvency of the population is falling, which means it can buy less for the same income.

But usually, as many people notice, price increases are accompanied by wage increases. We often hear that pensions and salaries of state employees have been increased (and 99% of them in the country, for example). But okay, if there are grounds for that - an increase in the volume of national welfare (not on paper, but upon receipt of money from its implementation). And if it's a turnaround!? This means that the solvency of the latter is being unreasonably tightened. And so one thing clings to another – here they have increased, others have increased their prices due to the fact that they have increased, etc., etc.

Based on this logic, we can say - "Yes, and the flag is in her hands, this inflation, and the road ahead. We've always lived like this, and everything was fine. Well, there will be wages in millions, trillions, not thousands of rubles, and that's fine. We will carry out the denomination and everything is fine."

But no, in this case, this is another trigger for heating up the same inflation.

The price increase itself indicates that sellers have reason to do so.There are no more goods, the leftovers do not grow, and all products are sold without problems. I.e., the price does not bring down demand, and sometimes even stimulates it.

In fact, overt or hidden (artificial price restraint) inflation is no less a dangerous phenomenon with a continuing soft monetary policy (PREP) than living in a monetary deficit (hard PREP).

The key thing is that inflation itself is a bell that goods/products in the country are becoming less relative to the amount of human resources that consume them. I.e., their incomes are growing, but the volume of goods is not. And if this continues, then, subject to increased commodity demand, due to high wages, everything will be bought up by consumers and sold out by manufacturers, and someone from this "pie" will not get something.

For example, there used to be 100 loaves of bread for 100 people, and now there are 50 loaves for the same 100 people. And the price of bread has increased and people's incomes have also increased, but there is not enough for everyone, even though everyone is rich.

Of course, you can say – And if the dollar rises   and prices due to this, too, that there is inflation. And what does this have to do with a decrease or shortage of commodity output/products in the country relative to yesterday?

If your country's economy is sensitive to dollar exchange rate, then its real sector (production) we depend on this currency. The dollar is usually calculated in the world due to a decrease in US manufacturing activity (tightening of the PREP), which means that this indicates a decrease in the production of imported goods in the world, and that your manufacturing sector will lose in volume due to this import restriction.

It will not be possible to buy dollars for printed money in order to cover the increase in the price of imported goods, because the price competitiveness of your products on world markets will already be taken into account here. I.e., no one will need your currency on the world stock exchange at such an inflated price (in conditions of high inflation in your country), because what would be an alternative to it to buy similar products in the world. All this suggests that the dollar will also have to be raised to ensure exports, and imported goods will become even more expensive and limited in access. And if the share of imports in the volume of the real sector of your country is high, then this will definitely reduce its activity (domestic production volumes will fall). Everything is connected.

And here it turns out that the one who "roars" first will survive, all things being equal. And if the income corresponded to the volume of goods, then there would be enough for everyone, but everyone would simply consume less.

Which option is better?

In the first case, this is when inflation is maintained (soft PREP in conditions of ongoing inflation) or in the second case, this is when inflation is extinguished (incomes decrease, loans become more expensive, PREP is tightened).

As a result, we have that if inflation is not stopped, it is likely that the time will come for food /commodity shortages (for example, as in 1988- 1991) and the discontent of those who do not get goods and material goods in living conditions with fiat inflationary "money", that there is social tension.

consequences of inflation if it is not stopped

Of course, you can pay everyone, but only those with connections and a certain official position can receive a limited product (which is corruption). And as you know, most of them do not belong to this category.

Usually, the most far-sighted, seeing the processes taking place, try to prematurely dump the depreciating currency into some real assets, real estate, gold, etc., in order to avoid problems in the future.

So, for example, in the same 90s, in conditions of galloping inflation and social tension, the modern oligarchy was born, buying up state property for priceless.

As a result, as a result of unbridled inflation, there will always be a commodity deficit with a high solvency of the population.

This is the main phenomenon of any uncontrolled inflationary process and what it can lead to in socio-economic terms.

Therefore, when a person asks the question - Why the economy is calculating, and the people are getting poorer , it is necessary to take into account the real consequences of the unbridled inflation of the past years.

The consequences of inflation: where is the end point or what an unbridled process can lead to - Something like that!

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