How the government could control inflation?
Causes of Inflation
An increase in the supply of money is the root of inflation.
Money supply can be increased by the monetary authorities either by printing and giving away more money to the individuals, by legally devaluing (reducing the value of) the legal tender currency, more (most commonly) by loaning new money into existence as reserve account credits through the banking system by purchasing government bonds from banks on the secondary market.
Now let's look at Economic plans and their effect:
1- The $1.9 trillion American Rescue Plan, the first leg of Biden's economic plan, is the law. ( Increase inflation)
2- Provide health insurance coverage for 97% of Americans in 10 years. ( Increase inflation)
3- Raise an additional $4 trillion in tax revenue by increasing the top tax rate to 39.6%, taxing capital gains at ordinary rates, and raising the corporate tax rate to 28%. (Anti-inflation)
4- Forgive student loan debt and make college free for those making up to $125,000. ( Increase inflation)
5- Raise the minimum wage to $15 an hour and repeal "right to work" laws. (Increase inflation)
6- Expand "Buy American" policies through government purchasing while using subsidies, federal matching, and incentives to make American products more competitive.
7- Invest $1.3 trillion in infrastructure over 10 years. ( Increase inflation)
8- Spend $2 trillion on clean energy during his first term as president. ( Increase inflation)
As you see all of the above will increase the money supply directly or indirectly and cause more inflation, except increasing Taxes!
The most important question is what else could the government do to control accelerated inflation?
Governments can employ a contractionary monetary policy to fight inflation by reducing the money supply within an economy via decreased bond prices and increased interest rates.
The problem is any contractionary monetary policy to fight inflation by reducing the money supply will have collateral damage! and the Stock market will pay for that!
I think sooner or later interest rates will be increased to control inflation, and we should wat for the market response!
Moshkelgosha
Educational Articles:
Inflation
https://www.investopedia.com/terms/i/inflation.asp
What Causes Inflation and Who Profits From It?
https://www.investopedia.com/ask/answers/111314/what-causes-inflation-and-does-anyone-gain-it.asp
9 Assets for Protection Against Inflation
https://www.investopedia.com/articles/investing/081315/9-top-assets-protection-against-inflation.asp
Inflation and Economic Recovery
https://www.investopedia.com/financial-edge/0212/inflation-and-economic-recovery.aspx
Inflation and Economic Recovery
https://www.investopedia.com/financial-edge/0212/inflation-and-economic-recovery.aspx
What You Should Know About Inflation
https://www.investopedia.com/articles/01/021401.asp
Understand the Different Types of Inflation
https://www.investopedia.com/articles/personal-finance/073015/understand-different-types-inflation.asp
How to Profit From Inflation
https://www.investopedia.com/articles/investing/080813/how-profit-inflation.asp
An increase in the supply of money is the root of inflation.
Money supply can be increased by the monetary authorities either by printing and giving away more money to the individuals, by legally devaluing (reducing the value of) the legal tender currency, more (most commonly) by loaning new money into existence as reserve account credits through the banking system by purchasing government bonds from banks on the secondary market.
Now let's look at Economic plans and their effect:
1- The $1.9 trillion American Rescue Plan, the first leg of Biden's economic plan, is the law. ( Increase inflation)
2- Provide health insurance coverage for 97% of Americans in 10 years. ( Increase inflation)
3- Raise an additional $4 trillion in tax revenue by increasing the top tax rate to 39.6%, taxing capital gains at ordinary rates, and raising the corporate tax rate to 28%. (Anti-inflation)
4- Forgive student loan debt and make college free for those making up to $125,000. ( Increase inflation)
5- Raise the minimum wage to $15 an hour and repeal "right to work" laws. (Increase inflation)
6- Expand "Buy American" policies through government purchasing while using subsidies, federal matching, and incentives to make American products more competitive.
7- Invest $1.3 trillion in infrastructure over 10 years. ( Increase inflation)
8- Spend $2 trillion on clean energy during his first term as president. ( Increase inflation)
As you see all of the above will increase the money supply directly or indirectly and cause more inflation, except increasing Taxes!
The most important question is what else could the government do to control accelerated inflation?
Governments can employ a contractionary monetary policy to fight inflation by reducing the money supply within an economy via decreased bond prices and increased interest rates.
The problem is any contractionary monetary policy to fight inflation by reducing the money supply will have collateral damage! and the Stock market will pay for that!
I think sooner or later interest rates will be increased to control inflation, and we should wat for the market response!
Moshkelgosha
Educational Articles:
Inflation
https://www.investopedia.com/terms/i/inflation.asp
What Causes Inflation and Who Profits From It?
https://www.investopedia.com/ask/answers/111314/what-causes-inflation-and-does-anyone-gain-it.asp
9 Assets for Protection Against Inflation
https://www.investopedia.com/articles/investing/081315/9-top-assets-protection-against-inflation.asp
Inflation and Economic Recovery
https://www.investopedia.com/financial-edge/0212/inflation-and-economic-recovery.aspx
Inflation and Economic Recovery
https://www.investopedia.com/financial-edge/0212/inflation-and-economic-recovery.aspx
What You Should Know About Inflation
https://www.investopedia.com/articles/01/021401.asp
Understand the Different Types of Inflation
https://www.investopedia.com/articles/personal-finance/073015/understand-different-types-inflation.asp
How to Profit From Inflation
https://www.investopedia.com/articles/investing/080813/how-profit-inflation.asp