There is a myth in mainstream economics that stable prices are necessary for the economy. The idea of price stability became popular in the 1920s, during a period known as the Roaring Twenties.
I recently talked to a friend who questioned the importance of inflation. He mentioned that inflation could be helpful in the event of a major crisis. He specifically talked about natural disasters.
Quantitative tightening (QT) is when central banks let assets run off their balance sheets. It is the opposite of quantitative easing. As part of quantitative tightening, central banks don’t roll over assets like government bonds and mortgage-backed securities. This is usually done after weathering an economic crisis.
Markets are tumbling across the board. Stocks, commodities, gold, bitcoin and other assets are all tanking. The S&P 500 had its worst-performing beginning of the year since 1939. We are officially in a bear market.
Deflation is when prices decrease throughout the economy. It is the opposite of inflation and most commonly associated with a contraction of the money supply, a drop in aggregate demand and technological progress. When there is less money chasing the same number of goods and services, prices decrease.
The federal funds rate, sometimes called fed funds rate, is the target interest rate at which banks provide overnight loans to each other. It is one of the main tools used by the Federal Reserve to conduct monetary policy. By controlling the federal funds rate, the Federal Reserve is able to influence the money supply.
Quantitative easing (QE) is a form of monetary policy that central banks use to stimulate the economy. As part of this strategy, central banks purchase assets like mortgage-backed securities and government bonds. Through the use of QE, central banks can increase the money supply.
Consumer Price Inflation is when the prices of goods and services increase throughout the economy. When the money supply grows faster than the production of goods and services, there is more money chasing the same number of goods and services. Due to supply and demand, this bids up the prices of goods and services.
The Federal Reserve System, often called Federal Reserve, or simply Fed, is the central bank of the United States. It was established when Congress passed the Federal Reserve Act in 2013. The Federal Reserve’s stated main goal is to promote full employment and provide price stability.
There has been growing concern about the sustainability of sovereign debt in the United States and around the world. While the United States has never directly defaulted on its debt, many people are wondering whether a US debt default might be on the horizon.