Inflation

[Agnii]

Yea, 1980s were tougher for India, until the 1991 reforms.

But how can we just comment that our administrators lack basic knowledge. You are talking as if the Indian policymakers don't know the abc of economics..

Why the great Harvards and Stanfords failed to stop 2008 recession then. Or, Were the 'ida odhukeedu' Indian IAS posted on deputation there in 2000s? Japan, who had the great growth story since Hiroshima Nagasaki, too had a large economic downturn.

During the same period when the reforms started in India in 1991, Japanese economy nosedived. That would tell you the story of what would happen when people are neither willing to spend nor willing to invest. They just hoard money. Why???

Why not?? When I know that my money values more tomorrow, I am more than happy to sit on the money. Risk of deflation is the liquidity crunch.

Imagine such scenario in vast and densely populated nation like India. If people just decide not to spend and not to invest. If a liquidity crunch hits India, it would be the worst nightmare.

 

[Nilaa]

But since these literates who merely swallow and vomit to become IAS, are equally clueless knuckleheads that couldn't guide the elected knuckleheads. Because what they learned in their degrees are useless trash.

Mm hmm ji.... I can't agree with this..

Upsc exams swallow and vomit ??
Preliminary kuda clear seya mudiyathu chuma apdiye padichitu eluthitu poga right...

 

[Agnii]

In general, government targets to have atleast 1% inflation increase, to discourage hoarding/encourage circulation and also to promote economic growth.

Yea, the point I was trying to make initially. Moderate inflation is essential and govt constantly monitors the prices so that hyper inflation can be avoided.

 

[Balan72]

Yes I stick with my point. And I will explain how inflation discourages FD.
Firstly, FD is a product for the retirees who are risk averse and it makes sense.

But for a nation like India where the disposable incomes are more concentrated for the age groups 25-40, I don't think we should encourage FD, atleast for those ppl. This is where inflation, or atleast inflation psychology plays a role.

If prices stay constant, or if prices decline, then FD makes sense. Coz the time value of money doesn't get impacted. On the other hand, if I am aware that FD rates cannot beat inflation rate, then I start looking beyond FD. That's where other investments attract me which can give me returns more than that of inflation rate. Maybe 12%,15% in the longer run.

So, the money which was stuck in FD breaks and now flows into stocks, MFs. This significantly improves the liquidity in the financial markets and helps the businesses grow.

You could revisit the growth stories of startups in India for the past 10-20 years. How many of them succeeded coz banks lend loans to them and how many succeeded because of their stocks gaining investors confidence

Sir, You totally missed the point I m trying to make. What i was pointing out is you fail to see the connection between the cause and effect. While you tell that the investment in FD depreciates the value on the one side, which is the effect of inflation, you not only accept and condone the inflation, but advocate that inflation is necessary for the growth of an economy, which is the cause of such erosion of FD principal's value.

Financing credits to industries does help them grow and usury is not the root cause of inflation, but the fractional reserve lending system that stretches and spins several times of the actual printed money that causes excess money supply.

 

[Balan72]

Yea, the point I was trying to make initially. Moderate inflation is essential and govt constantly monitors the prices so that hyper inflation can be avoided.

Because you @Agnii and @sita are good in math, I adduce with some courage. To other mathematically challenged ones, i wont even open this subject. Just check this reality. There are limits to growth, and it is governed by the laws of physics. Availability of resources, be it land or labour is limited. could be expanded within the limitations. Of course disruptions with innovative methods and machines are made and deployed. Yet, the deployment of resources are bound by limitation.

Whereas, a little inflation with a compounding effect say 2% year on year, would reach about 8% in 70 years with reference to the base. Every growth from there on will be higher and higher as the base for the YoY gets revised whereas in reality, the resources almost remain the same. A marginal addition of Land and likewise, labour increase commensurate with the workforce added / eliminated limited by the demographic position the country is in. Also, the entire population cannot be taken as demographic dividend becoz, the skillset and deployability fo each trade is another limitation. So such a limited factors cannot grow parallely with the perfectly compounding inflation on YoY basis. That excess is exactly the blood sucking portion we monetarist blame and curse. Hope you could see the point. And i forgot. @Vanathi too can comprehend this mathematical inconsistency with the physical world which it supposed to represent.

 

[Balan72]

What can lead to inflation?
The increase in purchasing power of people triggering more demand. Price can only increase when there is more demand in the market. Desire is not a demand. Desire combined with ability to pay is the demand.

See. These two words are opposite to each other. When you have inflation, it means that the value of the money you hold is diminished. That is the purchasing power is lost. How will the purchasing power of the consumer increase if the inflation is there. The very word inflation means all the people were robbed off a part of their money / financial asset holding stock. As such they all would have been stripped off some of the purchasing power they already had. And with the continuity of inflation, as it is compounding on YoY basis, they will be robbed off as late as it gets more and more as they hold as cash or financial assets like FD or Bond or other fixed income earned securities.

 

[Balan72]

Mm hmm ji.... I can't agree with this..

Upsc exams swallow and vomit ??
Preliminary kuda clear seya mudiyathu chuma apdiye padichitu eluthitu poga right...

மதி தமக்கென் ரிலாதவர் கோடி வகையறு சாத்திரக் கேள்விகள் கேட்டும்
பதியுறும் சாத்திரத் துள்ளுறை காணார் பானைத் தேனில் அகப்பையைப் போல்வார்

இந்த நாட்டில் தவறுதலாக தரித்திரம் பிடிக்கவில்லை வெண்ணிலா. கூறுகெட்ட படித்து ஒப்பிக்கும் மங்குனிகள் லட்சணம் இவ்வளவு தான். இதிலே வியப்படைய ஒன்றுமில்லை. அவன் ஒன்னும் வச்சுக்கிட்டு வஞ்சசனை செய்யலை. நெஜமாவே அவன்கிட்ட அறிவு இல்ல. இத விட கொடுமை என்னன்னா இவனுங்களுக்கு படிச்சு முடிச்சிட்டோம்னு நெனப்பு வேற வந்துரும் அந்த வீணாப்போன பரீட்சையை பாஸ் பண்ண உடனே.

 

[Balan72]

Why inflation is good for economy

In India, though a part of it is caused by rising oil cost, as India is one of the largest importers of oil, the significant contribution towards inflation is surge in the demand.

When the income of the household is increasing, people in India tend to save more as we are a savings driven economy. Hence there will be a liquidity crunch.

This is where inflation psychology comes into a picture. When the prices are on increasing trend, it affects consumer behaviour. He is more motivated to buy the product sooner.

When there is more liquidity, businesses expand and they employ more labour. More opportunities. This is good for economy as a whole.

In first 2 sentences, you mean we are import oil in large quantity and so, it results in inflation. Okey understood. And then you tell some surge in demand. How? couldn't understand. In the next statement, when income of household increase, people tend to save more. Okey.

In the next 2 statements, you tell about the mindset of the people in the inflationary trend i think. Like they are motivated to spend sooner because prices are raising. This actually happened in Zimbabwe and Weimar republic. Only during hyper inflation, such spending soon we can witness which you had accepted as detrimental. But spending spree would be wasted money. A good propensity to save which you told in the second statement will leave more for investment which is going increase production and the propensity to consume. That drains the purse of people and deprives fresh investment, limiting the possibility of fresh investment and thus limiting growth. Pls see.

 

[Balan72]

To be precise, if you had invested 10 lakhs in FD in 2013, you would have received 18 lakhs now. If you look back, 10 lakhs in 2013 values more than 18 lakhs in 2023.

Similarly, 18 lakhs in 2023 values more than 32 lakhs in 2033.

Why we say that time value of money is going south? Inflation. It may appear that money has grown from 18 lakhs to 32 lakhs. While mathematically it is correct, practically it is not.

This is precisely we shout inflation is bad. You rightly sensed it and put it as "Mathematically, it is correct, but practically it is not". What happened practically to the value of your money? you fell the actual value of your principal is lost na? that is what we call systematic robbing through inflation. That is never good. Think it over Sir.

 

[Balan72]

Why the great Harvards and Stanfords failed to stop 2008 recession then. Or, Were the 'ida odhukeedu' Indian IAS posted on deputation there in 2000s? Japan, who had the great growth story since Hiroshima Nagasaki, too had a large economic downturn.

When i replied to the thread here, i never referred India. I had to show the efficacy of Indian administrative services knowledge because you dragged India in your posts. Inflation is evil in general. Okey where ever it happens, it is not for good. Period. Here it was because of lack of knowledge and ignorance, so told that i m not surprised.

and by the way, did it tell that harwards and stanfords failed because of lack of knowledge? They did it on purpose. The Loot of american public is intentional. They created a bubble and busted it, looted their savings and stripped a whole bunch of middle class peoples money. Is there any rule that thieves are confined to just india. Evil people are born everywhere. There they did intentionally, here it is because of ignorance. Just see the deficit spending and the eventual response by RBI in rate hikes. Its visible clearly.

 

[Balan72]

During the same period when the reforms started in India in 1991, Japanese economy nosedived. That would tell you the story of what would happen when people are neither willing to spend nor willing to invest. They just hoard money. Why???

Well now, believing we are hopping to the next topic, that is still the extension of the same nasty story a.k.a high inflation. People of japan are much much conservative than indians. They save like frantic and fearing rise of property price increase, they all went into a race of protecting their savings in real estate assets. Well that went on to become the great asset bubble. Poor people fell for that.

Let me explain how it happened there. Besides inflation, the aftermath ensuing a prolonged high inflation regime is catastrophic. Their psyche of the common people was already battered in mid seventies with high inflation and thus the people have decided not to keep the money as such or in any financial asset as its been robbed once keeping so. Thus, they have resorted to real estate and all of them jumped into real estate parking. They however didn't spend instead of saving because saving is in their gene. And irresponsibility is not in their gene. In that race, the asset prices soared and thus became the great asset bubble of japan.

Having created a bubble, the logical conclusion is either the bubble get pricked and busted so that the reallocation of wealth happens and the economy moves on from there or the bubble stays and it has a slow death. effectively popping of the bubble to its respective values it it gets devalued, people hold obsessively. In the race to park the savings and protect their money robbed by inflation, they over saved and didnt spend on otherwise what they use to consume normally, Yes they were all robbed and since they were deprived fo their savings, yes they didnt spent. thus lower spending, lower demand lower income and the downward spiral got triggered.

We are sitting on a huuuuuge asset bubble for your information, if you had not sensed it till now. And that has not been busted by the incompetent impotent administration. The difference between japanese asset bubble and indian asset bubble is, theirs is made of ligitimately earned money whereas here in inida, the bubble mostly comprise of illicit black money. Some innocent working professionals had to pump their legitimate hard earned white money into the illicit asset bubble and keep it as black and hold.

So finally, inflation is harmful in the long run. it runs down the psyche of the people.

 

[Aadhini]

@Balan72

 

[Agnii]

Sir, You totally missed the point I m trying to make. What i was pointing out is you fail to see the connection between the cause and effect. While you tell that the investment in FD depreciates the value on the one side, which is the effect of inflation, you not only accept and condone the inflation, but advocate that inflation is necessary for the growth of an economy, which is the cause of such erosion of FD principal's value.

Yes, ennoda point um adhudhaan. I am against FD.

Instead of FD (savings), if money flows into other investments, there will be more liquidity in financial markets.

 

[Agnii]

See. These two words are opposite to each other. When you have inflation, it means that the value of the money you hold is diminished. That is the purchasing power is lost. How will the purchasing power of the consumer increase if the inflation is there. The very word inflation means all the people were robbed off a part of their money / financial asset holding stock. As such they all would have been stripped off some of the purchasing power they already had. And with the continuity of inflation, as it is compounding on YoY basis, they will be robbed off as late as it gets more and more as they hold as cash or financial assets like FD or Bond or other fixed income earned securities.

Ok, I see why you got confused. My mistake.

By purchasing power, I didn't mean the purchasing power of currency. I mean to say the ability to absorb the rising prices. What we call as the 'effective demand'

 

[Balan72]

Rubbish!!

இந்தூர்ல பெரியார் பெரியார்னு ஒருத்தர் இருந்தார். அவர் அறிவை பத்தி நிறையா பேசிருக்கார்ன்னு ரொம்ப படிச்சவங்கள்லாம் சொல்லிக்கிறாங்க. அது போவட்டும். அவர் என்ன சொன்னார்ன்னா, என்ன விஷயமா இருந்தாலும் மொட்டையா ஆமா இல்லன்னு நம்பாம நெறைய கேள்வி கேளுங்க. ஏன்? எதுக்கு? எப்படி? எப்போ? எதனால்? எங்கே? அப்டின்னுலாம் கேள்வியா கேட்டு ஆராய்ச்சி செஞ்சு கடைசியா எவனோ ஒருத்தன் சொல்லுறான்னு நம்பாம அவனவன் அறிவுக்கு எது சரின்னு படுதோ அதை ஏற்று நடக்கணும்ன்னு.

இங்ஙன ரப்பிஷ்ன்னு ஒரு இங்கிலீப்பீசு வார்த்தையை போட்டுட்டா அது எப்படி ரப்பிஷ்? ஏன் ரப்பிஷ்? இதுனாலன்னு சொல்லுற பொறுப்பு இல்லலியா? தெளிவா சொன்னா தானே தெரியும்? பதிலாச்சும் எழுதலாம்?
நமக்கெதுக்கு இந்த அறிவை பயன்படுத்துறை வம்பெல்லாம். பேசாம திடல்ல சொல்லிக்கொடுத்த மாதிரி கண்ண இறுக்கி முயூடிகிட்டு அவங்க எந்த பக்கம் காட்டுறாங்களோ அப்டியே ஓடிப்போய் விழுந்துரலாம். காரணமாவது மண்ணாவது அப்டிங்கிறீங்களா? .திடல்ல சொன்னா அதுவும் சரியாத்தான் இருக்கும்.

 

[Agnii]

Because you @Agnii and @sita are good in math, I adduce with some courage. To other mathematically challenged ones, i wont even open this subject. Just check this reality. There are limits to growth, and it is governed by the laws of physics. Availability of resources, be it land or labour is limited. could be expanded within the limitations. Of course disruptions with innovative methods and machines are made and deployed. Yet, the deployment of resources are bound by limitation.

Great point.
Resources are limited, completely agreed. If history can teach us one thing about this human race, it is the ability to thrive with the limited resources. Use of intelligence to optimize the resources. Breakthrough innovations which had improvised efficiency to multiple folds.

Israel's drip irrigation, Terraced farming in Asian countries like China, Japan, Phillipines, alternate energy from Germany, ongoing research and development on Generative AI models and the list goes on.

Also, the point that you are making about compounding inflation kind of projecting exponential growth in prices, which is not true.

Nations or even the world for that matter goes through economic cycle. Inflationary pressures are more felt during the expansion phase while the crest or contraction phase usually faces reduced demand and drop in prices.

 

[Balan72]

I ll start a detailed thread explaining what inflation is and how it is messed up with its different causes and variations. It becomes our duty to explain people for their comprehension and betterment. Thanks for the spirit of discussion and taking the crticism professonally and not personal. Thats a sign of maturity there.