# What's wrong with money that continuously decreases in value? **URL:** \ **Category:** Factual Questions\ **Created:** [October 17, 2011, 3:04am UTC](https://boards.straightdope.com/t/whats-wrong-with-money-that-continuously-decreases-in-value/599878 "2011-10-17T03:04:59Z")\ **Posts on this page:** 3\ **Page:** 3
**Author:** ![smiling\_bandit](https://avatars.discourse-cdn.com/v4/letter/s/e9a140/32.png) [@smiling\_bandit](https://boards.straightdope.com/u/smiling_bandit)\ **Post date:** [October 25, 2011, 1:24pm UTC](https://boards.straightdope.com/t/whats-wrong-with-money-that-continuously-decreases-in-value/599878/41 "2011-10-25T13:24:18Z")
> [@Hellestal](#): > > I will never understand this weird focus on interest rates. Close. Money is an item, a good, even if not exactly a consumer good. It’s price is determined in large part by supply and demand. The fed can control one part of the equation, and we tend to assume the other is pretty constant per capita over time, but demand does fluctuate. If nobody wants your currency, its price does go down, and it will be considered less valuable. This does cause inflation - it’s just not the worst part for most economies. ---
**Author:** ![septimus](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/septimus/32/410_2.png) [@septimus](https://boards.straightdope.com/u/septimus)\ **Post date:** [October 31, 2011, 9:12am UTC](https://boards.straightdope.com/t/whats-wrong-with-money-that-continuously-decreases-in-value/599878/42 "2011-10-31T09:12:53Z")
> [@KarlGauss](#): > > Just to confirm that I’m not totally befuddled and haven’t missed it in this thread, two questions, please: > > The root cause of inflation is the Federal lending rate being \> 0 ? I assume that _has_ to be right. Is it? > > The cause of rate of inflation becoming greater than that due to Federal lending is due to “growth of the economy”, i.e. more people being employed & more stuff and services produced/provided (both planned and real)? Is that right? > > Thanks! You’ve got both of these almost backwards! The Fed raises interest rates to attack inflation not promote it. That interest rates are now very low without leading to inflation is a sign of poor growth or impending recession. And the idea that “more stuff and services produced” causes inflation seems to miss the point. With more widgets produced, we’d expect their price to fall, not rise. Inflation results when more money is chasing fewer goods. (Typically this occurs when production has reached limits due to full employment.) Many many threads on economics have appeared at SDMB in the last few weeks, all focusing on money supply. I’m afraid this is a sign that Ron Paul and the Gold-bug idiots are confusing the debate. I keep offering the same correct answer, and it’s continually ignored. Let me try once more in a larger font: **Economic prosperity is about putting people to work producing useful goods and services**. The recent focus on money supply is misplaced, especially since the Fed has been injecting money into the economy to little avail. **The government should have put people to work, producing useful goods and services** , just as FDR did 77 years ago, but a Congress controlled by dingbats hasn’t allowed that. Experts at the Federal Reserve are aware of this, and respond with “Quantitative Easing” not because that’s the best path to improving the economy, but because that’s the option they have that doesn’t require Congressional approval. ---
**Author:** ![Rysto](https://avatars.discourse-cdn.com/v4/letter/r/ecccb3/32.png) [@Rysto](https://boards.straightdope.com/u/Rysto)\ **Post date:** [October 31, 2011, 11:14pm UTC](https://boards.straightdope.com/t/whats-wrong-with-money-that-continuously-decreases-in-value/599878/43 "2011-10-31T23:14:30Z")
> [@Sunspace](#): > > I’ve wondered about this too. Inflation and deflation have always seemed to me to be unnecessary extra features of the monetary system. Ideally, the amount of money in existence should be proportional to the amount of stuff it values, right? Economy expands, there’s more stuff, they make just enough more money that the number of currency units per unit of stuff remains the same. Likewise, if the economy contracts, they remove money to keep unit pricing the same. This is called monetary targeting and was attempted in the 70s and 80s before being abandoned. I once went to a talk by one of the deputy governors of the Bank of Canada, and he said that it turned out that there was an unexpected feedback loop meant that the more the central bank tries to target a given supply of money, the more the usual relationships between the actual money supply and other economic variables tend to break down and lose their normal predictive power. Edit: Besides, wouldn’t this policy call for the central bank to **shrink** the money supply during a recession? That’s precisely the opposite of what they should be doing. [Previous page](https://boards.straightdope.com/t/whats-wrong-with-money-that-continuously-decreases-in-value/599878.md?page=2)