Inflation Explained Transcript

did you hear about the inflation?

yes I did. From that quantitative easing video you sent me, remember?

(video clip of Quantitative Easing Explained cartoon on Youtube: “But aren’t the food prices higher than a year ago? Yes. Aren’t the gas prices higher than a year ago? Yes.”)

well unfortunately things have gotten a lot worse thanks to the ben bernanks money printing.

I recently saw the bernank on the 60 minutes tv show, and he said the quantitative easing was not printing money.

that’s funny, because I have it on good authority that the quantitative easing is the same as printing money.

and who told you that?

the ben bernank himself. he said so during an earlier appearance on that same tv program.

wow. so he just contradicted himself?

yes. economists like to say contradictory things.

why?

because when you have a terrible track record of predicting the future, taking both sides is the only way you can be right.

so how exactly does printing money cause inflation?

money is just like everything else, its value goes up and down based on supply and demand.

so when the Fed prints money, they increase the supply of money and force down the value?

right. and as the value of money goes down, you need more of it to buy stuff.

is that why it costs a lot more to buy food and gas then it did a year ago?

Yes. but when economists look at inflation statistics, they ignore the cost of food and energy.

why would they ignore the cost of the most basic necessities?

because they claim food and gas prices are too volatile.

what does that mean?

it means they fluctuate between going up and down.

but haven’t food and gas prices been going mostly up for several years?

obviously. but economists like to ignore the obvious.

why?

so they can sound smarter than the rest of us.

but what about other people. why do I always hear wall street people and big CEOs defending the fed’s money printing?

because those people benefit from inflation.

how?

inflation makes the price of everything go up. so it makes the cost of food and gas go up, but it also makes assets like the stock market go up.

and those people own a lot of stocks?

yes. the richest people in America have most of their net worth in stocks. Many corporate executives get parts of their salary in stock. and wall street profits are completely tied to the stock market.

but don’t they also drive cars and eat food?

they do, but the cost of those things is insignificant to their net worth.

and I guess the opposite is true for very poor people.

right. poor people don’t own any stocks, and they often live paycheck to paycheck, so any increase in the cost of basic necessities will hurt them.

so then inflation is a policy that hurts the poor while it helps certain types of rich people?

exactly.

its really hard to believe the Fed would be willing to hurt poor people so long as the stock market goes up.

don’t take my word for it, listen to what the ben bernank had to say.

(Video clip of Ben Bernanke speech at National Press Club: “For example since August, when we announced our policy of reinvesting maturing securities, and signaled that we were considering more purchases, equity prices have risen significantly”)

did he mention food and gas prices in that speech?

yes.

so he took responsibility for them?

no. the bernank said his money printing has nothing to do with commodity price increases.

does anyone believe that?

no. even the Feds own supporters on wall street have been advising their wealthy clients to invest in commodities to benefit from the quantitative easing.

what about inflation statistics other than food and gas. are those going up?

somewhat, but they understate the truth.

why?

because they use virtual price decreases to offset real price increases.

what is a virtual price decrease?

according to economists, if a fancy smartphone this year costs the same as it did last year but has more features, then its deflating.

but what about people that can’t afford a fancy phone?

those people are just screwed.

its hard to believe anyone would think gas and food price increases are not a problem because gadgets are getting cheaper.

the William Dudley, who is the head of the New York Fed, disagrees with you.

(Video clip of William Dudley Q&A session at Queens Chamber of Commerce: “I certainly acknowledge that food prices have gone up, but people also forget that other prices have gone down. Today you can buy an Ipad 2 that’s the same price as an Ipad 1 but twice as powerful”)

doesn’t the william dudley realize how such a policy will impact poor people?

before joining the Fed, the william dudley was a partner at the goldman sachs. He probably doesn’t know what a poor person is.

so most economists think inflation is not a problem?

yes. they think inflation is tolerable so long as wages and salaries are not going up.

so they think its ok for people to have to pay more for necessities as long as they have less income?

exactly.

that is the dumbest logic I have ever heard.

dumb logic is at the core of modern economic theory.

so is there a good alternative to modern economic theory?

yes.

what is it?

its called common. sense.

whats a common sense way of understanding money printing and inflation?

just realize that you never get something for nothing.

what do you mean?

I mean if there are benefits to money printing, like higher stock prices, then there has to be a cost.

as in higher food and gas prices and struggling poor people?

yes. along with international turmoil and punishing people that like to save money.

how does inflation punish savers?

as the value of our currency goes down, so does the buying power of the money you save in the bank.

so the fed would rather we spend all our money than save it?

yes. why do you think we have zero interest rates?

but isn’t not having enough savings one of the reasons we got into this mess in the first place?

yes.

wow.

I know.

its hard to believe all of this is possible.

In a world where cartoon bears on youtube are the most reliable source of information, anything is possible.

 
 

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