inflation what really happens....the effects on....

[playacaribe2]

AND, maybe BEFORE!!!!!!
If Venezuela demands payment of the 4 BILLION DOLLARS that the DR owes them for oil purchased with 30 year credit, LOOK OUT!!!!!!
Also the DR CONTINUES to borrow new money to pay Old Debt, AND takes on EVEN MORE international debt at the same TIME!!!!
Lets see if the introduction of dollars that Expat Dominicans bring, and/or send, into the DR in December lowers the exchange rate THIS YEAR????
My guess, Not Much!!!!!
CCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCC

Yes, the peso gaining value during the holiday months was usually a given for years.

However, if I recall correctly, that did not happen last year. The dollars coming in now are leaving just as fast as they enter..given the current debt levels.

Respectfully,
Playacaribe2

 

[DRDone]

The definition of Inflation is actually inflation of the money supply. With more money in the system (Supply is more), hence the value of the money is less as the goods and services in the system remain static. So the actual result of the inflation is increased prices. So now people actually use the result of inflation as the definition for inflation (i.e prices going up is referred to as inflation, or the CPI (consumer price index) goes up or down is called inflation) which is incorrect. The inflation is there when the money is printed, the prices will go up later as the money makes its way through the system, so this is actually mathematical.
So the next question is what causes the money supply to be expanded. Well that is debt, government debt and close friends of govt that get bailed out (such as the banks with QE in the US). So in the long run foreign exchange rates will be based on fiscal responsibility of countries and their debt levels (both public and private that would get bailouts).
The US Dollar is the reserve currency of the world, and oil is always purchased with USDs, hence the USD is also referred to as the petrodollar. This creates a demand for USDs for any country that wants oil (all of them), as they need to purchase USDs to purchase oil. Things are changing as more countries are looking to purchase oil in their own currency and when/if this happens, the demand for USDs will drop dramatically and all that inflation (expansion of the money supply) will go after all other goods in the US and prices will increase substantially with US foreign exchange rates not doing well. Obviously this would not make the US happy.
This is as short a possible answer that can be given to this question.

 

[Cdn_Gringo]

....much the same way you do not need to be a weatherman to know its raining.

Just because you look out the window and see that it is raining doesn't necessarily mean that you know why it is raining. Further, you do need to be a meteorologist to attempt to predict the weather pattern six months from now based on environmental observations made today.

When an economy is already experiencing inflation, you are correct, just about everyone can observe and conclude such. The purpose of a structured economic policy is to attain a measure of regulatory control over the market place and avoid large swings either way. Even though we created the system, we are not very good at controlling it long term. Which is why economic theory and practice is so complicated and it is so difficult for even the experts to get it right all the time.

More respectfully.

 

[the gorgon]

The definition of Inflation is actually inflation of the money supply. With more money in the system (Supply is more), hence the value of the money is less as the goods and services in the system remain static. So the actual result of the inflation is increased prices. So now people actually use the result of inflation as the definition for inflation (i.e prices going up is referred to as inflation, or the CPI (consumer price index) goes up or down is called inflation) which is incorrect. The inflation is there when the money is printed, the prices will go up later as the money makes its way through the system, so this is actually mathematical.
So the next question is what causes the money supply to be expanded. Well that is debt, government debt and close friends of govt that get bailed out (such as the banks with QE in the US). So in the long run foreign exchange rates will be based on fiscal responsibility of countries and their debt levels (both public and private that would get bailouts).
The US Dollar is the reserve currency of the world, and oil is always purchased with USDs, hence the USD is also referred to as the petrodollar. This creates a demand for USDs for any country that wants oil (all of them), as they need to purchase USDs to purchase oil. Things are changing as more countries are looking to purchase oil in their own currency and when/if this happens, the demand for USDs will drop dramatically and all that inflation (expansion of the money supply) will go after all other goods in the US and prices will increase substantially with US foreign exchange rates not doing well. Obviously this would not make the US happy.
This is as short a possible answer that can be given to this question.

great explanation. what i take it to mean is that you can in fact increase the money supply and not have inflation, as long as there is corresponding elasticity of demand and supply which exceeds the rate of increase of the money supply.

 

[cobraboy]

AND, maybe BEFORE!!!!!!
If Venezuela demands payment of the 4 BILLION DOLLARS that the DR owes them for oil purchased with 30 year credit, LOOK OUT!!!!!!
Also the DR CONTINUES to borrow new money to pay Old Debt, AND takes on EVEN MORE international debt at the same TIME!!!!
Lets see if the introduction of dollars that Expat Dominicans bring, and/or send, into the DR in December lowers the exchange rate THIS YEAR????
My guess, Not Much!!!!!
CCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCC

Today a gubmint spokesman made a clear point that the DR is 100% complying with the terms of the deal. I interpret that out-of-nowhere comment as a pre-emptive statement that the loan has no legal basis to be called in.

Future loans and purchases? Different story.

 

[playacaribe2]

Just because you look out the window and see that it is raining doesn't necessarily mean that you know why it is raining. Further, you do need to be a meteorologist to attempt to predict the weather pattern six months from now based on environmental observations made today.

When an economy is already experiencing inflation, you are correct, just about everyone can observe and conclude such. The purpose of a structured economic policy is to attain a measure of regulatory control over the market place and avoid large swings either way. Even though we created the system, we are not very good at controlling it long term. Which is why economic theory and practice is so complicated and it is so difficult for even the experts to get it right all the time.

More respectfully.

To your point...even the weathermen cannot always accurately predict the weather.

Economic theory is based on a set of statistics/factors/models. The reason it is so hard to predict...like the weather...is that things change.

Internal and external factors, like unpredictable geopolitical events, force economists to constantly evaluate and change their predictions/models.

Just last week the US 10 year broke below 2%. No one saw that one coming...although some did believe a retracement to test the 2% range was possible...but not below. What happened was a series of events causing overseas investors to rush to the safety of US Treasuries...pushing the yield below the 2% level (1.84%).

Economic models are just that...models. They are, to use the analogy, like long range weather forecasts, and always suspect. But, like I suggested earlier when it's raining...you do not need to be a weatherman to know...much like looking at a 30 year chart of the decline of the value of the peso against the dollar.

Respectfully,
Playacaribe2

 

[DRDone]

great explanation. what i take it to mean is that you can in fact increase the money supply and not have inflation, as long as there is corresponding elasticity of demand and supply which exceeds the rate of increase of the money supply.

No, the inflation is actually the increase in the money supply by definition. You are stating that maybe you won't get price increase if you increase the money supply. That is when you get into different economic philosophies. It is possible that certain prices would not go up, because they are in higher supply, but the truth is that then they would have gone down without the inflation (expansion of the money supply) and hence they are falsely higher then they would have been.
When you are on a true gold standard (gold is money and used as the exchange) there is no inflation in the system as you can't print gold (you can always print paper gold certificates of paper which is what US dollars used to be until they printed too many and "went off" the gold standard). When gold is used as money you have a true non-manipulated price of goods. Otherwise the central banks are playing games with the supply of money and really devaluing your money based on their economic theories and what is best (for them or society - you decide).

 

[the gorgon]

No, the inflation is actually the increase in the money supply by definition. You are stating that maybe you won't get price increase if you increase the money supply. That is when you get into different economic philosophies. It is possible that certain prices would not go up, because they are in higher supply, but the truth is that then they would have gone down without the inflation (expansion of the money supply) and hence they are falsely higher then they would have been.
When you are on a true gold standard (gold is money and used as the exchange) there is no inflation in the system as you can't print gold (you can always print paper gold certificates of paper which is what US dollars used to be until they printed too many and "went off" the gold standard). When gold is used as money you have a true non-manipulated price of goods. Otherwise the central banks are playing games with the supply of money and really devaluing your money based on their economic theories and what is best (for them or society - you decide).

i understand exactly what you mean. my response was worded to use the term inflation in its colloquial sense, in which an increase in the CPI is called "inflation". as you have pointed out, that is an incorrect use of the terminology. what i meant is that you can have inflation, in the correct sense, without a subsequent rise in CPI, depending upon elasticities.

 

[drstock]

I think the OP went away with a headache!

 

[cobraboy]

Economic theory is based on a set of statistics/factors/models. The reason it is so hard to predict...like the weather...is that things change.

Respectfully,
Playacaribe2

That, and there are over 7 billion moving parts that actually ARE "the economy..."

 

[the gorgon]

I think the OP went away with a headache!

he thought that the answers would be simple.

 

[the gorgon]

To your point...even the weathermen cannot always accurately predict the weather.

Economic theory is based on a set of statistics/factors/models. The reason it is so hard to predict...like the weather...is that things change.

Internal and external factors, like unpredictable geopolitical events, force economists to constantly evaluate and change their predictions/models.

Just last week the US 10 year broke below 2%. No one saw that one coming...although some did believe a retracement to test the 2% range was possible...but not below. What happened was a series of events causing overseas investors to rush to the safety of US Treasuries...pushing the yield below the 2% level (1.84%).

Economic models are just that...models. They are, to use the analogy, like long range weather forecasts, and always suspect. But, like I suggested earlier when it's raining...you do not need to be a weatherman to know...much like looking at a 30 year chart of the decline of the value of the peso against the dollar.

Respectfully,
Playacaribe2

some models have to be able to address short term changes, or else any attempts at countercyclical monetary initiatives and inflation targeting are futile ventures.

 

[drescape24]

One of the best threads in a very long time!

 

[Bronxboy]

One of the best threads in a very long time!

And to think it was started by chic!!!!

 

[chic]

i remember reading(wow)about inflation in argentinia.(sp)..(tango)..and how a day labourer would spend the money before she got home because her money couldnt buy tomorrow what it would buy today.....not currency trading....rio had rapid inflation like germany at the end of the war... they had daily rise in pesos...
does currency fluc. affect locals? bodegas raise their prices...???

 

[chic]

Yes, the peso gaining value during the holiday months was usually a given for years.

However, if I recall correctly, that did not happen last year. The dollars coming in now are leaving just as fast as they enter..given the current debt levels.

Respectfully,
Playacaribe2

peso gaining value?34x1 versus 45x1....to me that means the d.p. is loosing...
mexico 1964 banks paying 65% for c.d.'s us dollar contract much lower at 13% ....we took the high road and lost plenty...
mexican pesos devalued 3 or 4 times maybe more...had 100,000mp in bank tomorrow 10,000mp...govt took...the rest...this happened until the mex pesos stabilized... i still have 10 0r 15 dollars invested ....
used to change 40 -50 bucks and get many thousands... big pile of money... separate pocket... now they want dollars...
hope u can follow my ****

 

[chic]

wanna be a miilonaire at least once in your life.....go to columbia....although im not sure of the exchange rate but it used to be 200 us $ would get you a million pesos... which you could spend high rolling in a two week peroid...

 

[playacaribe2]

peso gaining value?34x1 versus 45x1....to me that means the d.p. is loosing...
mexico 1964 banks paying 65% for c.d.'s us dollar contract much lower at 13% ....we took the high road and lost plenty...
mexican pesos devalued 3 or 4 times maybe more...had 100,000mp in bank tomorrow 10,000mp...govt took...the rest...this happened until the mex pesos stabilized... i still have 10 0r 15 dollars invested ....
used to change 40 -50 bucks and get many thousands... big pile of money... separate pocket... now they want dollars...
hope u can follow my ****

If the currency is gaining value against another, the number of pesos you receive goes down...and the price per peso goes up....and the currency is getting stronger. This used to happen almost every holiday season...until last year.

By way of example, if the exchange rate is 50:1 against the dollar, each peso is worth 2 cents.

If the peso gains value against the dollar and goes to 40:1, each peso is now worth 2.5 cents....and has gained value.

Of course, if the reverse happens, the peso goes from 40:1 to 50:1 against a dollar, the pesos value has gone from 2.5 cents down to 2 cents.

Even though you get more pesos, the value of each peso is declining.


Respectfully,
Playacaribe2

 

[the gorgon]

If the currency is gaining value against another, the number of pesos you receive goes down...and the price per peso goes up....and the currency is getting stronger. This used to happen almost every holiday season...until last year.

By way of example, if the exchange rate is 50:1 against the dollar, each peso is worth 2 cents.

If the peso gains value against the dollar and goes to 40:1, each peso is now worth 2.5 cents....and has gained value.

Of course, if the reverse happens, the peso goes from 40:1 to 50:1 against a dollar, the pesos value has gone from 2.5 cents down to 2 cents.

Even though you get more pesos, the value of each peso is declining.


Respectfully,
Playacaribe2

i have no idea whether he wants to discuss exchange rates or inflation..

 

[Cdn_Gringo]

I think we started off with inflation, then got sidetracked with the value of currency as often happens with this type of discussion. While somewhat related, buying power and inflation are two very distinct cause and effect market forces.

Let's go full throttle into the effects of DR sovereign debt on inflation and currency valuation with a side discussion on the effects of the US controlled IMF to really get the weekend going.