Is there any way to eliminate inflation or any theories of this?

Question

Is there any way to eliminate inflation or any theories of this?

Answer 1

The reasons for inflation are well understood, eliminating them is a policy preference of central banks and national governments.  Inflation is the result of a hidden tax called seigniorage.  It then manifests itself in other ways, such as "demand pull," "demand push, " and so forth.  In the end, however, inflation is a function of seigniorage in excess of the growth in production.  Seigniorage revenue is the money a Treasury makes for printing money in excess of the cost of printing.  Money is a non-interest bearing form of debt from the government to the people usable for the payment of taxes.

Inflation happens when more money is printed than the increase in new goods.  In a society with $100 and 100 identical goods, the price per good would be $1.  If the society had a 1% productivity gain in the next period then there would be now 101 goods.  To avoid inflation or deflation the government would need to print one additional dollar.  However, governments cannot know in advance how much production will actually happen in the near future so inflation and deflation must happen to cover the errors in estimation.  Deflation can cause nasty dynamics, such as the Great Depression, so governments fear deflation.  So, given a chance to error one way or the other, they err on the side of inflation, though they may work hard to make that error as small as possible (inflation targeting).

The above statements are true for an inflation targeting nation, but some nations lack the information or infrastructure to effectively tax.  Those nations use seigniorage as their only tax.  The tax is then distributed  throughout the entire nation.

Inflation is problematic because it falls disproportionately on the poor and also causes wealth transfers from the poor to the rich.  The rich tend to hold assets that appreciate with inflation and tend to borrow from the savings accounts of the poor through the banking system and debt becomes less valuable under inflation.

Is it actually impossible to have long run 0% inflation, yes it is, but it is not possible in the short run.  Is it desirable?  That is a discussion that must occur at the policy making level and not here on Yahoo Answers.  That is a political decision.  It should be an electoral decision.  Since we do not adequately teach our high school students how the world works, most Americans only know how inflation feels and so do not realize that it is a decision by the government to have it or not have it.

The oil price shifts are the consequence of choices made over the last several years by both the Congress and the White House.  The Fed's role is to mitigate the damage of those choices.

Answer 2

Yes.

Inflation is caused by expansion of the money supply.  Simply don't print or create money via bookkeeping which expands the money supply ration beyond the supply of available goods.

The US dollar is nothing but a note, payable with another note.  The Fed and our government removed all backing years ago, and then created excess paper money which has triggered a collapse of the dollar.

Answer 3

Eliminating inflation is like trying to outlaw the sunrise.

Love jack

Answer 4

Inflation comes in two forms: that with real causes, and that with monetary causes. You may have heard "demand pull" and "supply push" - this is another way of looking at inflation caused by real forces acting in the markets.

Inflation is the rise in prices over time. Prices can rise because the money supply grows faster than the demand for money (as when money is printed too fast or when the velocity of money decreases unexpectedly). Prices can also rise because of sudden scarcity or shifts in demand.

Inflation in a nation with a well-controlled and effective monetary policy (such as the US) is generally due to real causes - ie scarcity and consumer demand.  The way to tell the difference is that money-driven inflation should rise across the board at an equal pace, while market-based inflation will apply differently to different goods to reflect their relative scarcities.

Theoretically, money-based inflation can be all but eliminated by careful monetary policy, although the government does not control all sources of money creation. Consider that wealth is often created in the financial system (bidding up of securities prices, increased valuation of property, etc), and that this wealth, once realized, constitutes an increase in the money supply. Also consider that money may be created without attendant wealth (namely, via a loan). Thus, some level of inflation should be expected on average over the long term.

It is impossible to eliminate market-driven inflation unless we can exactly control consumption and production. This works out neatly in models where you have one set of consumers with homogenous tastes and one set producers making a homogenous good from a scarce, but for the moment undepletable, supply of the necessary inputs. But most classical and even Keynesian models do a poor job of illustrating market behavior with goods of increasing scarcity.

Answer 5

Completely overhaul the idea of 'money' as paper.