Friday, September 23, 2022

The inflationary pressures caused by overpriced assets. Real estate and so forth.

Seems like there is always a tradeoff in economics. Now that wages have been going up and jobs are easier to find, we have inflation. Increasing costs, including labor costs, passed along to the consumer. It's like "we can't have it all."

Income inequality is a big factor in this problem. I'm not against the idea of using graduated taxes to address income inequality.

Some inflation may not be a bad thing. Someone does have to pay for higher costs. It's either the consumer or the upper level management and owners as profits and top level wages have to come down.

Either that or income and wealth inequality is addressed through higher taxes. Hopefully, it's taxes on wealthy individuals, rather than smothering business. I know business needs money to operate and, in some cases, expand and update.

As long as wages and prices go up together, things aren't too bad. It's the big gap between things that really creates the problem; like when food costs remain low while housing costs go through the roof. Then restaurant workers can't afford a place to live.

I think rising interest rates will help cool the cost of existing housing. One problem is that homes have become an asset and they have gone way up in value over past decades. They have gone up along with other assets, such as stocks.

I think asset values have been rising out of line with the rest of the economy. That may be why the Federal Reserve is trying to tighten up on the money supply. A way to cool the bidding wars for homes and so forth. This is one lever that can dampen inflation.

It does look like some inflation isn't the end of the world. Inflation is said to be bad for people with savings accounts, but low interest rates have already destroyed bank savings as a way to build wealth anyway.

As for everything going up in price, it's just money. Future generations will just move the decimal point over. The dollar is becoming the new dime and future generations can start from there.

What the Fed is doing now is probably a good thing, however. Modest inflation is better than having it so rampant that it is out of control. Rampant inflation, in assets such as home values, has been driving wealth inequality for decades.

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