To: Mike Johnston who wrote (75286 ) 12/11/2006 1:39:42 PM From: mishedlo Respond to Because the wealthy have the quickest, easiest and cheapest access to credit. They turn around and spend the new money first, lifting prices in the process. By the time Joe Schmoe gets his loan, the prices will have already risen. The problem of course is targeting prices in the first place. Sometimes money flows into houses and stock and bonds instead of goods and services. Sometimes productivity improvements mask inflation. Sometimes falling commodity prices mask inflation. Of course I am talking about "real inflation" as measured by increases in money supply as opposed to hedonically adjusted price inflation as seen through the eyes of central bankers.The second answer is because inflation benefits those that receive money first: the government and banks. The former is via automatic tax increases not indexed to inflation (especially property taxes), the latter simply because banks are first in line to receive money from the FED at rates no one else sees. By the time lending standards drop so that the masses have access to credit, the boom is well underway. By the time credit is granted to anyone that can fog a mirror, the boom is nearly over. Those buying assets late in the game will eventually be crushed by those selling assets that got in early. Simply put, inflation eventually becomes a moral hazard. globaleconomicanalysis.blogspot.com
