What causes inflation in the long run?

Increases in the currency supply causes inflation... When the Federal Reserve is not constrained by the gold standard, it can expand the currency supply at will, by printing money out of thin are, as opposed to physical gold being mined out of the ground... Check out these graphs, and pay particular attention to the behavior of the trends after 1971, which is when we left the gold standard as well as the total number of bank reserves after 2007... http://mises.org/markets.asp

First off, anyone suggesting we go back to a commodity basis for the dollar is simply ignorant of how fast that situation can go down hill. Commodities markets are easy enough to manipulate that anyone with a little backing can dry up the basis commodity at will, like, say, Iran. The Fed is not a branch of the federal government, nor is it directly connected with the US treasury. It is an independent central bank. The Fed does not have elected governors. It is independent so that, in theory, the populace cannot simply vote itself a payraise. Interest on savings increases the money supply, and the increase in the money supply causes inflation. And if no interest is being paid out and either productivity or workforce decreases, so does GNP, and thus the dollar gets more scarce per person, and you get deflation. So the Fed moves financial policy around so that they get a low but steady GNP growth as best they can, to provide a targeted inflation rate which pretty much reflects the GNP growth rate. That, by the way, is no coincidence. Guess, however, what the Fed cannot do right now unless they want another meltdown like in '07. Raise rates. They cannot afford to have ARMs readjust again.

AIR

it depends on what the illuminati desires.

Business cycle is only in the short run. In the long run,nominal wage will adjust, and the economy will grow as normal. In the short run according to Keynes, government spending is the main cause. It is either too high or too low.

check out two documentaries on video google and youtube respectively, Money As Debt and Firewall In Defence Of The Nation State

Someone said 'Interest on savings increases the money supply'. It is the cue, that the modern economy is always 'inflation prone'. It is a built-in & inescapable feature. Interest is a measure of wealth generation with a big 'If'. The 'If' is that the money so generated should have worth in terms of purchasing power (a round-about way of defining inflation). Banks earn interest when invested properly to yield high returns. That is made possible by general economic activity (Industry as Secondary sector & production of basic stuffs as the Primary sector) . if the underlying sectors perform poorly, the currency notes and the earnings become fictitious and this is what separates a monetarist from an economist. The great crash (in 1929?) is the result of this failure of the underlying structure crumbling, when farmers gave up agriculture as unremunerative and invested in the Stock. Several mini crashes happened at the turn of the millennium. Banks' interest presupposes (strongly) that the productive processes are in gear. With money expansion comes inflation (whether it is 1/2% or 10%) that needs to be trammeled and tamed. It is a task before the economists. If inflation is more than the bank interest rate that I get, I would be wise to withdraw money from bank and spend it. I will put money in the bank only if the interest rate is higher than the inflation rate. With the savings thus plummeting, in times of inflation, the high and mighty (but not wise) look for some alternate control and they use monetarist sops as that is the lever they have readily in their hands. It might turn the situation favourably as it creates an atmosphere (even euphoria) but that is unsustainable. Sops that are essentially psychological won't work. Another stratagem is wage freeze that Margaret Thatcher implemented brutally and arrested run-away inflation. It sure makes large sections unhappy and is bad politics. But that is the easily & readily available solution to break the wage-rise cost-push spiral. It is the most unkind way of withdrawing money supply from the market.