It's common knowledge that if you print more money, you will produce inflation. However, things are more complex than that. You can have both inflation and deflation in the same time. More often, we have relatively low inflation on common products and high inflation on specific products - think real estate.
Money velocity
First, there is that "money velocity" that equals the equation Products * Price = Money * Velocity. The money velocity is intuitive, but cannot be practically measured except from this equation - thanks to my namesake friend for this idea.
Intuitively, if I sell something for 5$ and I buy something with this 5$, we have 10$ chasing products. If I just store my 5$, we have only 5$ chasing products. The Velocity of the money is related to how fast money is re-used. However, there is no formal way to actually measure it for an economic segment.
When the economy is in recession, the money velocity decreases, bringing the fear of deflation - the opposite of inflation. Deflation is even more feared than inflation. On very short, deflation is bad because it creates a spiral of lower prices that will make many companies to go bankrupt and stop producing welfare in society.
Money "printing"
On economic recession, fighting deflation is often done by injecting more money into the "market". This is done usually from central banks that will reduce interests in the hope that people will loan more money that will create a bigger monetary mass. This should offset the lower Velocity of the money and keep the prices relatively stable.
There is an issue here. Loaned money is not distributed equally inside economy. When someone perceives an economic crisis, he/she might reduce the money spending and will not take loans anyway. The cheap money will go mostly to people with good financial situation, that will likely make big investments like real-estate or stock. This will create an inflation only in this category of products, but it might keep the common goods on a deflation trajectory.
Sometimes central banks will buy state bonds, creating money that are not loaned. Without this, the interest to central banks would slowly deplete the money from the market. Even in this case, money is flowing unequal in economy. It is slightly better when the money goes into state spending, as long as such spending is actually creating welfare - useless projects does not produce welfare, they only redistributes welfare.
Real estate bubbles
Such inflation on real-estate and maybe stock happens in USA for some time, while economic policies tried to fight economic recessions. From time to time, such bubbles blow, like in the subprime loans crisis in 2008.
Even when it does not blow, such increase in real-estate prices creates economic distortions and affects the purchase power of less fortunate people.
This could also be one explanation for the rise of political leaders like Trump. People are perceiving immigrants as putting a pressure on their welfare. But maybe the unequal economic stimulus is more guilty for this.
What can be done?
One idea is to better distribute the created money when there is an economic recession. We should avoid pumping money in a narrow segment like real estate.
Many people get scared in economic crises, so they will not loan even cheap money. We should stimulate demand with measures that don't require people to take more risks. We can go with tax relaxation, for example. Even if the actual prices gets lower, the important thing is that the welfare producers will get enough money to keep their business, to continue to produce welfare in society.
Other measures can focus on people that are losing their jobs. The welfare production is often very sensible to lower demand on economic crises. The important thing is to keep enough welfare production in society, otherwise the average welfare of people will surely suffer. What is not economic feasible will die anyway, we just don't want to kill good business because of random monetary shrinkage.
Last but not least, welfare creation is for people. We should be sure that the created welfare actually improves people's life.
What do you think?
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