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Influences on Debt

Read this to Understand Deflation

Read this to Understand Deflation

Deflation is marked by an increase in the value of currency and the concomitant decline of living costs. In more mathematical, synonymous terms, it is inflation with a value of less than zero.
To clarify, deflationary periods are distinctly different from disinflation in the respect that the former is a decrease in the market cost for certain goods, while the latter is only a limiting of the rate of increase associated with inflation. This can be remembered by looking at the fact that “inflation” is contained with “disinflation” and going from there.
Traditionally, deflation is depicted in terms of less abundant, more valuable currency on the national level. Nonetheless, “debt deflation,” as it is termed, may apply to different circumstances and populations altogether. At the personal level, debt deflation is germane to the reduced value of one’s secured assets. 
In terms of the current real-world relevance of deflation (as opposed to its aforementioned manifestations which are more abstract), the going concern is that this period of economic crisis is promoting dangerous levels of deflation to the extent that the employment situation will not improve and demand for consumer goods that is so critical as a stimulus to the economy will not be achieved because of the low prices.
In fact, some have even coined a new term—stag-deflation—to refer to a scenario in which, as opposed to “stagflation,” inflation is of a negative value, yet unemployment rates exceed the norm.   

Learn About Exchange Rate

Learn About Exchange Rate

Domestic debt is more likely than foreign debt to affect inflation/deflation. As always, it is important to understand the underlying concepts behind a phenomenon before we can use the term in context. The phrase “exchange rate” refers to a translation of values between currencies of nations based on approximations of their worth.
Certainly, there is no one universal exchange rate, as there is no one universal currency by which standards of the value of a national denomination can be judged. By virtue of this, individual exchange rates between two countries at a time must be tabulated. Of course, these equivalencies are going to be relevant to most seekers of this information if the two monetary units are stable entities/correspond to major economic forces (e.g. the dollar, the pound, the euro).
How does foreign debt figure into the equation, though? For one, exchange rates govern only the most liquid (i.e. that which can spent by the general public) types of money that exist, and as such, they hearken back to considerations of the role of the domestic money supply in this regard.
However, with a high degree of liquidity of state-issued funds and a global demand for a particular currency, foreign debts for the nation to which the denomination belongs only stand to increase because of large-scale efflux of bills and coins to compensate. Plus, in the likely event the value of this currency goes down, even more notes must be generated, worsening any inherent reports of inflation.

Consider these Historic Examples

Consider these Historic Examples

We would be remiss if we did not consider America in our discussion of famous inflations. One of the most common causes for inflation and rapid issuance of money is war, which obviously requires vast sums of money from a national government to fund.
The two big conflicts to pass on American soil—the American Revolution and the Civil War—are both marked by a dramatic increase in the rate of inflation during these times. Regarding the Revolutionary War, this was a direct result of the mass generation of what are known as bills of credit—state-generated bills that essentially served as a surrogate for money. During the Civil War, meanwhile, it was actual paper money that saw expansion in a major way. In both cases, the high rate of inflation was followed by a corresponding period of severe deflation.         
For yet more grievous inflations, though, we may go outside the United States and visit other continents. An oft-cited example of inflation because of the enormity of the situation occurred in 1920’s Weimar Germany. Following its defeat in the First World War, Germany was at the political and economic mercy of the war’s victors.
Their (the other countries’) demand for reparations in the Treaty of Versailles was crippling, especially in light of the London Ultimatum, which mandated that as many as two billion gold-backed mark (the currency of the country at the time) per month be forfeited as a compensatory sum.
Logistically, this turned out to be beyond the country’s means, and consequently, an era of hyperinflation swept the Republic. At its worst, the rate of inflation was such that the price of goods would double once, twice or more times over, and just within the span of a week. Moreover, the collapse of Weimar Germany paved the way for the ascendancy of Adolf Hitler to the nation’s proverbial throne.
As far as more recent inflations go, another stand-out from a historical standpoint despite its novelty is that of Zimbabwe. The African nation, which is still trying to fight its economic demons, has encountered a rate of inflation at several points in its timeline that easily exceed the millions of percent above the baseline rating.
As is often the case with inflation, the devaluation of the domestic currency will lead to its retirement, if only temporarily. As of this writing, the Zimbabwean dollar is yet out of commission in favor of more stable foreign denominations, namely the U.S. dollar and the South African rand.   

Short Overview to Inflation

Short Overview to Inflation

Inflation, a term derived from the concept of physical expansion, is more analogous to the idea of ascendancy, for economic inflation is defined as a rise in the price of a “market basket” of goods over a month, year, or other given amount of time. Inflation, then, is evidently a relational concept.
As products and services get more expensive, this inherently means that the money one possesses is worth less than it was valued prior to inflation, and thus, the purchasing power of the average consumer is compromised. In extreme cases, inflation becomes almost completely uncontrollable, and at this point, it is deemed “hyperinflation.” The most critical numbers behind inflation are those of inflation rates, and accordingly, this is how its impact is measured. 

Quick Guide to Measuring Inflation

Quick Guide to Measuring Inflation

Inflation rates are statistics-oriented, which is fairly evident from the way inflation as a whole works. The overall inflation rate is a number and is usually expressed as a percentage change from the previous month or year. Inflation rates in America and abroad are not just arbitrary figures handed down to the people by the economic sages of our time. In other words, quite simply, the inflation rate has to come from somewhere.
One of the primary determinations of rates in the United States is tallies of what is known as the Consumer Price Index (CPI), a synopsis of the changes in price (for better or for worse) of consumer goods and services. Indeed, it would not be feasible to include the rise and fall of every commodity, which is why the CPI uses a “basket” of them designed to be representative of the market at large.
However, consumers are only part of the equation, for while their behavior dictates the welfare of the market-based economy, they are not the ones to set the prices, and they are certainly not the powers-that-be that affect the inflation rate. Coupled with the aforementioned CPI, inflation rates must also put into focus what are known as Producer Price Indices (PPI).
Usually set in motion by the earliest buyer-seller transactions per measurement period, the PPI program features data on a number of different commodities that, as with the CPI, would appear to be a good sample for the sake of generalizability to other producers.
The current inflation rate in of itself does not do a lot of good for analysts, be they amateurs or professionals. Inflation is fundamentally a relational science, and thus, a number of analyses are used by professionals and other interested parties based on their purpose.
Some reviewers, for example, may find a month-by-month breakdown of inflation rates to be useful as dictated by the variable state of the economy and the high fluctuation of item costs. Then again, some may be looking at inflation rate from a more historical perspective, calculating the difference between the current rate and that of a base year.
It should be noted that amidst scrutiny of inflation rates, not all goods and services are weighed equally, a policy which makes up for in accuracy what it loses in fairness. After all, some commodities are going to be more essential than others or more highly-demanded.

Facts You Should Know About Money Supply

Facts You Should Know About Money Supply

There is little debate as to whether or not money supply, or the amount of available “money” in circulation in a given economy, changes within the context of inflation and deflation. Of course, the use of the term “money” in money supply is not limited to only denominations of bills and coins backed by precious metals in the Federal Reserve (though, in fairness, this is a big part of the supply). 
There are a number of different financial instruments that may be classified under this designation. For one, issuances of credit and loans may be included herein, such as bank deposit accounts, traveler’s checks and security investments. In accord with the monetary policy of the United States, the entire supply is divided into subsets that vary by degree of how they might be spent by the public.
For instance, the M1 aggregate is best symbolized by its main component: notes and coins that are not held within the Fed, banks or any other institution. Those tallies that are contained in federal and federally-insured institutions are grouped differently and are not released to the public.
In terms of how the money supply is tied to credit/debt and inflation, then, it must be understood how regulation at the hands of a Federal bank and its monetary policy may impact the cost of being a borrower or debtor. Specifically, money supply is tied to the national interest rate. With a tightening of the supply, the price of credit, measured by the rate of interest, goes up. Conversely, with a relaxation of the supply, the charge to the debtor/borrower and the interest rate go down.  
Yet another relationship is discovered in the monetary policy-inflation/deflation binary, and this is where the nexus of the argument arises. Going back to interest rate modification at the behest of the government, interest rates are formulated correlative to the rate of inflation, so that high interest rates imply a need to lower inflation, while low interest rates signify the necessity of encouraging it.
By extension, this would also seem to say that money supply has a lot to do with regulating price fluctuations. However, some theorists suggest that supply is merely ancillary to the main control of these trends: how funds are distributed, and not necessarily how much. 

4 Kinds of National Global Influences on Debt

4 Kinds of National Global Influences on Debt


Inflation
Inflation, often measured by values on the consumer and producer price indices, analyzes the costs of consumer goods and services over time. Inflation is commonly characterized and mediated by a flooding of the money supply with paper and coinage of compromised worth and a concomitant weakening of the consumer’s very ability to consume because of this.
In severe cases, known as hyperinflation, the rate of inflation will grow somewhat exponentially until some crisis intervention strategy is effected. Potentially, this interest rate may be millions of times or more above the norm. 
In actuality, a small amount of controlled inflation per year (less than 5% the current market price) is actually encouraged by analysts as a means of stimulating the labor force. Aside from hyperinflation, though, inflation presents quantifiable dangers to the personal and national economies. Very directly, prices will go up severely as a result of inflation. Moreover, these high prices will mean greater responsibilities on the part of customers to foot the bill for employee wage increases, assuming those workers are kept on at all. 


Deflation
As somewhat of a complement or foil to inflation but still its own entity, deflation is not to be confused with disinflation, or inflation at a slower rate of inflation relative to previous measurements. Deflation, is the lowering of prices and raising of the purchase power of currency in circulation.
Literally, it is a negative version of inflation. Deflation occurs at a Federal level, as the cost reduction is reflected in the consumer price index and the PPI. However, this does not preclude deflation from happening at a more personal level, namely to the deflation of value in one’s secured assets, known to some as debt deflation.   
Debt deflation, as some theorists term it, also refers to the dynamic at work between the two namesake forces. With less revenue coming in to producers as a result of deflation-induced low prices, producers become larger debtors as they cannot use production to cover deficits like they once did, and may have to file for Chapter 7 or Chapter 11 Bankruptcy.


Money Supply
Regardless of whether money supply is a cause or solution to the nation’s problems with inflation and deflation, there is no doubt that the two are fundamentally linked. Money supply, as the name implies, is the sum of all money available for public consumption in an economy.
However, it should be stressed that this does not only apply to bills and metal coins. On the contrary, a number of different monetary instruments fall under the umbrella of “money supply,” including Federal Reserve funds and bank reserves, deposits made with banks, securities, and other forms of credit.
Just how important money supply is in regulating inflation and deflation is hard to determine. Many would say the monetary policy of a nation like the United States is more vital and influential than that of the numbers attached to monies in circulation. After all, monetary policy is the primary determinant of how much money is released into the public domain, and by proxy, the national interest rate.
Whatever the case, monetary policy must be effected with a mind for providing the right balance between inflation and deflation. Again, inflation or deflation, carefully monitored, can have a stimulating effect on the economy rather than suffocating it.

Exchange Rate
The impact of debt to foreign nations and the rate of exchange in currencies on inflation and deflation would seem to be minimal at first, but it is hard to discount the fact that that we are trillions of dollars in debt to the rest of the world, especially considering trade and the trading of securities are such big markets.
To be sure, for the United States, as an example, the relative value of the dollar alongside those currencies of other nations may affect our ability to compete in the foreign market positively or negatively and, in turn, trends toward inflation and deflation on a domestic level. For lesser countries and currencies, meanwhile, the effects of these phenomena are likely to be even larger, to the extent these nations may even forsake their own denominations in favor of more established, less risky units like the American dollar.
Overall, the nature of the exchange rate makes it so risk is never altogether unavoidable. Logically, the values of currencies in foreign exchange are variable and are the product of speculation on the health of the economy and government that issues the money. That said, the day-to-day or other period-to-period measurements of this data will likely be more of a concern to consumers than government officials.
This is to say that the exactitude of the exchange rate may be more relevant to the individual traveler abroad or the corporate businessperson than it does to the producer/government unit that plays a role in shaping the exchange rate.