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In this research article, we are going to discuss the cause of inflation in the American economy which not only affects the American economy but the conglomeration of the world economy as a whole. We are also going to discuss the practical remedial measures, which will automatically bring down inflation, in turn facilitating the American Federal Reserve to decrease the interest rates. The increase in interest rates is causing havoc in the American economy, the side effects of which can be felt in several prominent US banks failing and tech companies reducing their employee strength as a precautionary measure.
Goals
1. Explain the background and the cause of inflation: We will discuss the causes of inflation which takes its root to the COVID-19 pandemic and discuss in detail its effect on the American economy and the world economy as a whole.
2. Solutions for taming inflation: In this research paper, we will discuss the steps necessary to be taken to bring inflation down. This doesn’t involve simply asking the American Federal Reserve to reduce the interest rates arbitrarily or asking the World leaders, be it political or industry to simply give solidarity or growth-promoting statements.
Impact of COVID Pandemic
Let us first discuss the impact of the pandemic on society. This is not just about the American economy. It’s about all the countries in the world, which are affected by the pandemic. The pandemic has mainly affected people who were not taking precautionary steps like taking vaccines and those who ignored the warnings and safety measures put up by governments and agencies like the World Health Organization. In underdeveloped countries, it affected those who were not able to get access to vaccination and those whose living conditions were poor. On the whole, it affected people who were not sophisticated, to explain it in layman’s terms.
Cause of Inflation
Let us now discuss the cause of inflation. Before we get into inflation, we will discuss the prevailing situation in society. After the pandemic, the society was left with sophisticated people. They were more talented, educated, and more sensitive to work ethics, culture, and pay. This is the reason behind the present turmoil in employee attrition as these sophisticated people left behind started demanding better employee welfare and treatment. Now we will get into the reason behind the inflation. The inflation is caused by the increase in demand for goods, by these sophisticated people. Since these sophisticated people had more purchasing power, goods and services became expensive because of the competition between the sophisticated buyers.
Inflation Pattern
If we want to solve the problem of inflation and control the increase in the Consumer Price Index and all other price increases, we need to study the pattern of Inflation. Inflation is not equal across all segments. Inflation is affecting the segments, which are niche, sophisticated, and expensive. This is because sophisticated people started buying niche goods. This can be seen in real estate prices in large metropolitan cities and goods and services which are consumed by sophisticated people increase manifold. The inflation pattern is uneven. It only affects the niche segment.
Taming Inflation
Now, we will discuss the simple solution to the complex problem the world is facing now. Increase the supply of niche goods, so that its demand can be met properly and decrease the production of substandard goods. Now comes another question. How to find niche products and differentiate them from substandard products. The products that sell like hotcakes are niche products and those that are on the shelf for a long time are not niche products.
The simplicity of the solution and its easy implementation
This solution doesn’t require any risks or bets. Because anyway, you are going to sell products that are in huge demand and sell like hotcakes. You are anyways going to reduce the production of products that are not selling. This method if implemented will bring down the Inflation automatically and doesn’t require any infusion of money from any government or the central bank's unnecessary intervention.
Banks and interest rates
Banks in the United States like Silicon Valley Bank and First Republic did not make any scams or fraud. They just made bad choices, which along with the result of an unexpected increase in interest rates by the US Federal Reserve caused the bank’s failure. This has caused panic among bank customers in the United States and the world as a whole. This panic is causing banks around the world to lose their market value. Once inflation calms down and the Federal Reserve reduces its interest rates, the economy will start to grow more rapidly bringing confidence and stability to the economy and the banking system around the world.
Employment and prosperity of the economy
Production of sophisticated goods and services requires sophisticated employees. This solves the problem of attrition in employment because sophisticated people are demanding sophisticated jobs. Remember the job market is good in America despite the inflation and the interest rate hikes by the Fed. There are jobs available. It just needs to be more sophisticated and more remunerated. The whole world is in a transition period, where we are stepping into a prosperous and wealthy period, where all the necessities of our population are going to be fulfilled. Let us pray to God, that He guides us in this transition and showers us His love and passion for the people in this world.
Photo Courtesy: Indiatimes.com
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