Manufactured Inflation

तुलसी मुद्रास्फीति (inflation) से सुख उपजत चहुं ओर।

ब्याज दर ही इक मंत्र है परिहरू बचन कठोर।।

Originally by Tulsidas, it can be loosely translated as news headline, “Central bank decreases interest rates, loans to be cheaper”.

What does it mean? It so happens that when we lose “interest” in buying stuff, central banks empathise by reducing interest rate at which they lend to banks. The banks in-turn can lend to us at lesser interest rate, to align with our lack of “interest” in buying stuff. You see central bankers know our lack of “interest” is because our bank accounts are running dry.

That’s perfect you would say. Well it is, except that central banks reason of aligning interest rates with our lack of “interest” is counterintuitive. They have a mandate to increase price of stuff by decreasing interest rate which is contrary to our goal of getting stuff at cheaper price. We indicate that stuff is costly by showing our lack of “interest” and while they empathised, they want an increase in price of stuff. Now, don’t scratch your bottom thinking why would anyone want to pay more for stuff? These central bankers are tricksy, like Red Queen in Lewis Carroll’s ‘Through the Looking Glass’,

“Now, here, you see, it takes all the running you can do, to keep in the same place. If you want to go somewhere else, you must run at least twice as fast as that!”

Seriously though, don’t get their intentions wrong. We do deserve it. After all, we want more money without working hard, right? We want more money, but don’t want to pay the price for it, all pun intented. This is the absurdism that central banks are trying to solve, all for our own good. No wonder that US Federal Reserve Chair said this recently,

“We’ve lived in that world where inflation was not a problem,” Powell said. “I think we understand better how little we understand about inflation.”

The secret to understanding the working of central banks is hope. And of course, people with a very short term memory. Central bankers are eternal optimists with virtually infinite amount of money at their disposal (pun intended) to manufacture something they don't understand. Sounds familiar? They are just doing what everybody else is doing, i.e. manufacturing stuff that we don’t need now but in future we will not be able to live without. That’s the story of inflation, nobody wanted it, but now we cannot live without it. ‘Dr. Strangelove or: How I Learned to Stop Worrying and Love the Inflation’, originally a Stanley Kubrick film.