Volume 7 Issue 9

Inflation: Where is it?

With all of the recent talk around the implementation around the new stimulus bill, it is important to think about the possible implications that come with the money. As many politicians have brought up, inflation is a real and true issue for the economy. For those of you who may be unfamiliar with inflation, it is essentially the process by which money loses its value. This happens when more money is introduced into the money supply thus causing existing money to lose its value.

We have seen large amounts of money being introduced previously during the last two stimulus rounds and most recently during the passing of the 1.9 trillion dollar stimulus bill.

While Joe Biden and his team are happy to continue pushing forward, it is important to look at all sides of the argument. The former secretary of the Treasury under Bill Clinton, Larry Summers, has stated how he feels the administration might be pushing the economy too fast, according to the Washington Post.

This also comes at a time of “looser” targets and a lot less disciplined approach to monetary policy. The Federal Reserve under Jerome Powell, nominated by President Trump, has said that they are willing to go slightly over the two percent strict inflation target if needed. To go along with the new stimulus, the Federal Reserve has also slashed interest rates to nearly zero. This means that banks can get money for far cheaper and ultimately pass it on to us, the common consumer, in the form of low-interest rate loans.

This new stimulus can also cause risks abroad.

China recently came forward about the major risks the new stimulus bills can bring to countries abroad. For some context, the United States dollar is one of the most important currencies worldwide It is the most used currency in the world and thus is the world’s reserve currency. This means other nations keep trillions of dollar bills in their treasuries to support or “peg” their currency to give it value in the form of the dollar. China being the world’s second-largest economy after the United States is also the largest holder of United States Dollars in their treasury.

This recent spending and subsequent loss in value of the dollar affects all dollars and that includes those in the Chinese treasury.

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