Inflation: what it is and how it makes you poorer
The more I converse with people, the more I realise that the majority of people do not know what inflation really is. Many people think that inflation is the price of goods increasing. This is not inflation; this is only a symptom of inflation.
Inflation is the increase in money supply. Simply put, inflation is when governments inflate the currency supply (out of thin air) and thus having more currency circulating in the markets.
So, whenever central banks lend money to governments, banks or corporations, they inflate the money supply. When these loans, or bail-outs, are repaid to the central bank, a lot of this money disappears again, but not the interest that was charged on these loans. To repay the interest portion, one needs more money, and this money can only come from ultimately making more loans, having their own interest charges too. So, this is a growing snowball affect of debt chasing debt, and to keep it going, the rate and size of this debt-chase has to be increased, otherwise the fiat currency will collapse.
With more and more money being pumped into circulation, a currency devalues simply because there is more of it chasing the same, relatively speaking, amount of goods. When more money chases the same amount of goods, the more money will be charged for the same amount of goods. Thus, if making it look as if the cost of the goods is increasing, but its not, only the money chasing it is getting cheaper.
Knowing now where money comes from (out of thin air) and seeing how it inflates the existing money supply, one can see how all these bail-outs in the financial industry, extra loans, purchasing of bad debt and ‘infusing’ the markets with extra money will inflate the fiat currencies to unprecedented levels. Unfortunately, salary increases does not keep in pace with the amount of inflation, and thus, people become poorer, because the money that they earn are worth less.
Here is a short and informative documentary on what currency inflation is:
To understand all the affects that inflation has one people, here is a more detailed presentation by professor Krassimir Petrov:
Now that you know what inflation is, how it is being created and its affects on you, how do you feel about this?