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Cannon Warner

Oily Succulents

Mr. Gardener

February 8, 2023

The Terrible Truth of Inflation

Inflation and cash flow seem to be boring words reserved for successful Fortune 500

company owners and snooty business men. However, those words become more relevant when

people take into consideration that these two factors could send the United States into an

economic depression. The word inflation is something commonly heard on television as people

tune in for the nightly broadcast, completely unaware of the possible effects it could have on the

economy, and the impact it could have on their lives. Inflation in economic terms can be

described as the general increase and fall in the purchasing value of money. Currently in the

United States the dollar is inflating in a way that causes it to lose value. As it loses value

consumers lose the ability to afford goods while manufacturers lose the ability to produce said

goods.

When the dollar inflates in a way that causes it to lose value it is bad for the economy,

however, there are times when inflation can have positive effects. When the economy is at a

standstill where no significant economic progress is made inflation can give the economy that

little boost it needs. “More dollars translates to more spending, which equates to more

aggregated demand. More demand, in turn, triggers more production to meet that demand.”

(https://www.investopedia.com/ask/answers/111414/how-can-inflation-be-good-economy.asp).
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Essentially what this means is that when more money is in circulation people will be more

enticed to purchase goods keeping businesses afloat and the economy progressing.

There are also a number of people who benefit from inflation. Debtors are a group which

look for times of inflation to borrow money, or pay off debts that they had previously. “if a

debtor has $10,000 of debt during an inflationary period, that debt has less worth as time

progresses. From a purchasing power standpoint, it's more advantageous to slowly pay off this

debt during highly inflationary periods due to the debt's diminishing value.”

(https://www.investopedia.com/ask/answers/111414/how-can-inflation-be-good-economy.asp).

This can be especially helpful to those with student or housing loans that are needed to pay off,

but this isn’t much help when the debtor acquires money at a constant rate as inflation increases.

The negative effects of inflation are much more important. The issue with inflation is that

it can be disguised as something positive. During times that the government is worried about the

economy it can allow citizens to take out loans from banks at a low interest rate meaning they

can take large sums out money out and not have to pay much more later in return. In addition, the

government can dump surplus money in the form of stimulus to further boost businesses. This

causes demand for goods to be higher than supply as everyone is purchasing goods because they

have more cash on hand. Because of this, businesses will ramp up prices just to stay profitable.

“When there's extra money floating around, people will spend it faster than businesses can

produce goods so all businesses in all industries raise prices and that is inflation.”

(https://m.youtube.com/watch?v=zIbNJCSCEjk). If this trend continues and more money is

pumped into the economy the dollar becomes significantly weaker and prices will continue to

rise.
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During the last three years inflation has been on a steep incline. This is partially due to

the covid-19 pandemic and the government's response. “In the wake of COVID-19’s arrival, the

U.S. government hoped to thwart a reactive recession by infusing stimulus money into its

economy and using its central bank, the Federal Reserve, to lower interest rates. At the same

time, the job market tipped in favor of candidates, driving up wages. With a higher money

supply, many people suddenly felt flushed with cash. And they spent it with confidence,

increasing consumer demand. But the pandemic had wreaked havoc on the supply chain. Raw

material shortages and factory shutdowns slowed manufacturing.”

(https://sba.thehartford.com/finance/what-is-inflation/.). What this is saying is that without

significant change inflation will continue to rise and soon there will come a point when goods are

so expensive that consumers will no longer be able to afford them. Suppliers will have run out of

goods and what is left will be so expensive that they will not be able to sell, leaving the economy

in a depression. (See figure one for visual representation).

(Fig. 1)

Anderson, Nick “Inflations effects on economy” Political Cartoons on the Economy 1/27/23

https://www.usnews.com/cartoons/economy-cartoons 2/1/23
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What this cartoon represents is that there will be a recession if this issue is not dealt with.

A recession is where goods and services are so expensive that people cannot afford them thus

strengthening the dollar.

I believe that the cons of inflation greatly outweigh the positives and know that

something needs to be done about it. The issue has been put off long enough and the alternative

to finding a solution is much worse than letting the issue continue the way it has been for as long

as it has. I have personally seen the increase in goods and the effect is has had on people close to

me. Those who are already financially unstable will not stand a chance should prices for goods

hike up the way they are now.

In summary, inflation in small amounts is good for the economy when it is controlled. It

helps debtors and those paying back loans. However it is not good for the economy when

inflation spirals downhill the way it has been. The price of goods rises as the amount of cash

increases in circulation. Once that cash stops flowing nobody can afford said goods.

Unfortunately there is no easy solution. The strengthening of the dollar is most efficiently

accomplished through recession. But remember that if there is no recession then there will be a

depression which is much worse. If the economy is to fix itself American citizens must keep the

cash that is already in the system in circulation. If this is done correctly then the economy can

function in a way that prevents the dollar from crumpling.

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Works Cited:

“When Is Inflation Good for the Economy?” Investopedia, Accessed 6 Feb. 2023

https://www.investopedia.com/ask/answers/111414/how-can-inflation-be-good-economy.asp.

Anderson, Nick “Inflations effects on economy” Political Cartoons on the Economy 1/27/23

https://www.usnews.com/cartoons/economy-cartoons 2/1/23

Johnny Harris “INFLATION, Explained in 6 Minutes, Youtube, 2022,

https://m.youtube.com/watch?v=zIbNJCSCEjk

How Does Inflation Impact Businesses? | Small Biz Ahead. 31 Aug. 2022,

https://sba.thehartford.com/finance/what-is-inflation/.