Why is inflation a bad thing, as an average american?

Question

The majority of the population buys a great number of things on credit. Average wages are too low to allow for the luxury paying out right. The savings of the average american are falling, if they have any savings at all.

As educated people we know the cost of living will increase, but wages will have to increase as well. Businesses must pay employees more, so they can then go out and buy their products. The cost of living is a silly argument and goes against traditional capitalist economic principals.

As it appears from this info the people really losing are the few wealthy with money in savings and no debt. Now if they are losing money, then we will lose out on investments from them? Or will the investments come from a rising middle class that was suddenly able to get out of debt due to the inflation. Furthermore could inflation solve the minimum wage debate and create a new living wage as not just those on the very bottom are effected, but those making $15/hour feel the preasure

i dont care to hear about world markets and trade, these are irrelevant.

Answer 1

Inflation is bad because you get less for the same amount of money. A candy bar was 50 cents five years ago, now they are 65 cents.
Wages for average americans dont increase in direct proportion to the increase in the cost of living. The only people who are truly compensated for this are goverment employees who receive a cost of living allowance (cola) every year.

Answer 2

You're too young to remember the '70's, or you'd know why inflation is bad for the average American. Imagine the prices of everything going nowhere but up, all the time. Interest rates are up, but nobody saves because the inflation rate outpaces the interest rate increases. People spend their money as soon as they get it, because they know it will never be worth any more than it is right then and there. They know from sad experience that it will be worth even less in the future than it is now. So all this spending puts more upward pressure on prices. Wage increases can't keep up with the price increases. High interest rates price many people out of the market for houses and cars. Back in '78-'79, the prime rate (interest rate banks charge their most credit-worthy customers -- big business, in other words) reached 21%. Regular people paid about 3% over that, for a whopping 24% -- if they could get a loan at all. The joke at the time was that if you were rich enough to qualify for a loan, you didn't need one! Worst of all, it's the people at the bottom, the minimum wage workers, who are hurt the most, because they have the least amount of money at a time when everyone and all their damned cousins are demanding more money for anything and everything!

Answer 3

I have a degree in Economics but I will leave it on the side for now.

Inflation is bad because it is change. The big factor is that it carries uncertainty. It isn’t constant change, it isn’t always predictable. Oh sure, there is winners and losers like most aspects of life. Some of the winners planned correctly, some of them just got lucky. Some of the losers did not plan, planned incorrectly and others just very unlucky.

Do I think your rising middle class scenario happens? Yes it does. But I think it is more a thing of the past than something for the future. Example: In the 60/70’s a young family could by a brand new house in the burbs and 2 new cars for what it costs you to buy a used 2002 SUV today. Now they are getting ready to sell that house and retire. They turn to a current young family and are willing to sell their 40 year old house for $300,000 to $500,000. Are the youth of today likely to hit middle class going into debt $500,000? It isn’t likely. Will the bank lend that to you on minimum wage or $15/hour? No. And also shows how people arbitrarily benefit, in this case because of when they were born.

Flamingo, as for money. Less than 10% of US money is in the form of cash. Paper bills are made of cotton-paper, not dead trees. As cotton is a product picked from plants, money therefore promotes the growing of more vegetation and means more oxygen.

Answer 4

In the short run inflation benefits debtors at the expense of their creditors, but only if the debt is long term with a fixed interest rate like a home mortgage. If it is credit card debt in interest rates rise to cancel the gain. However it leaves a legacy of high interest rates for new borrowers even after the inflation goes away so the creditors on average get their losses back, and new borrowers lose out, In the long run the inflation of the 1970's helped the over 30's at the expense of the younger generation who wanted to buy homes in the 80's.

Answer 5

You are correct, wages will rise at some point to account for inflation, but this is not an instant change. It really depends on your individual expenses, particularly if you have multiple people dependent on your salary. The economy is a circle, and everything in it has an effect on everything else. With that being said I'm not certain you can in fact pinpoint winners and losers from the macro level...
Inflation is a fundamental principle that will always exist. But to truly appreciate it's dynamics you need to explore the essence of commerce, and what a currency actually is. What you earn in income, on any level, is your means for choosing those things you need/want at a later date. This relationship is the conceptual underpinning of value, and the currency is the means of transferring this value. If people in general did not feel confident that they would be able to see a respectable return in raw value in the labor/work/product they've sold then the whole system is less stable. Inflation robs individuals of the total value return on their investment.

Answer 6

Inflation will have the Federal Reserve implement a "Tight Money" policy.

Currently, a person searching to get a home can do so with 0-little down. As inflation rises, banks will have more foreclosures to carry. Eventually, the banks will require large down payments (20% down). House prices and interest rates are inverted. This means that today you can buy a house valued at $200,000.00 with 5% down ($10,000.00). When interest rates rise, house prices will drop (Average American will loose existing equity in house) ... so the same house will be bought at $140,000.00 with 20% down ($28,000.00). We can see that an American would find it easier to come up with $10,000.00 vs. $28,000.

The next question with the inflation is: Are wages increasing, staying the same, or decreasing (stagflation). Let's say a loaf of bread costs $2.00 today and inflation pushes it up to $2.40 loaf Inflation will balance out when wages increase at the same rate as inflation (wages increase from $16.00/hr to $18.00/hr): u won't knotice the price increase. When wages stay the same ... then individuals earning $16.00/hour will have to work harder to buy the same goods and $2.40 will make 'em work harder to get the bread ... therefore getting less for their money. Worst is when employer’s layoff and employees earn less money ($16.00 to $14.00/ hr) and the cost of goods and services increases - making it more difficult to pay $2.40 for bread.

Economically as a whole, we see growth halting. New houses stopped. Construction stopped. And ppl tend to take less vacations, and buy less goods.

Also the Federal Reserve will buy back Treasury Bonds to help make money harder to get. Which decreases imports from other places and potentially increases exports to other places.

Answer 7

Inflation is just part of the business cycle. It eventually leads to stagflation where prices continue to rise while wages do not and jobs become scarcer. After this period, prices fall (on a relative scale) and unemployment rises. Then things bottom out and prices rise while employment goes up. The important thing to remember is that in every part of the cycle someone wins and someone loses. which leads to the next stage of development.

Answer 8

So, your thesis is what, that using fact wages are too low, we purchase on credit, for this reason we pay later, so inflation is a robust factor? First, the mark downs value is down partly using fact of what we call mark downs - 10% greater of the inhabitants owns its own residence, and properties are two times as large on elementary, as replaced into the case interior the mid-Nineteen Seventies. fairness at your house of residing isn't seen area of mark downs. yet what's occurring is that greater human beings are paying for a helpful asset, an asset that keeps its value, than replaced into the case a era in the past. AFTER THAT purchase your loose funds bypass may be under those of a few human beings interior the mid-Nineteen Seventies yet by no potential in the previous that purchase. And as inflation creeps up, so do real costs of activity. So the "we are paying later" argument does not fly the two. As for "those on the very backside" and the minimum salary, look, McDonalds will pay $7.50 / hour to start, and Starbucks will pay $8.50. it relatively is been 12 years using fact the minimum salary replaced into greater advantageous yet in that factor physique the proportion of workers who make minimum salary had fallen by using greater advantageous than a million/2, and under a million% of people who made the minimum 12 years in the past make it now. it relatively is an get right of entry to point salary. it relatively is earned by using little ones, contemporary immigrants, ex-cons on parole, housewives and elderly human beings working "get out of the residing house for some hours and make slightly greater spending funds" jobs. in basic terms approximately all and sundry who earns the minimum today will earn a minimum of 20% greater a 365 days from now. maximum people who've been interior the artwork tension for two decades make a dissimilar of what they made of their first jobs, even their first 'real' job. the assumption of a "salary hollow" is amazingly like a "promenade hollow" between extreme college seniors and extreme college newcomers.