Honest
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Ok, let's start simple and work our way to inflation. Let's imagine a world where the government prints a certain amount of money, to make things easier let's say 1 trillion dollars, and no more will ever be printed, this makes it so that in absolute terms you can think as 1$ as a 1/1 trillion so you can buy stuff relatively to how common they are, if we produced 1 trillion kg of rice, then 1kg of rice should cost 1$, but if we produced 2 trillions then the price drops to 50 cents.
Cool, things make sense, however there are some problems with this approach, money gets destroyed, or otherwise lost forever, so in the long run $1 becomes rarer than 1/1 trillion, let's exaggerate that and imagine there are now only $1000, it doesn't make sense that a 1$ buys only 1kg of rice anymore. This is called a deflationary currency, and this is bad, because if you know this is the way money works you wouldn't spend your money because it will be more in the future.
Ok, let's try to combat that, let's then say that the government prints a certain fixed amount of money every year. Some years less money would be lost, those years the value of money would decrease, other years more money would be destroyed, and those years the money would be worth more.
What happens now? Well, people would speculate, and not spend in some years, overspend in others, and the economy would be a wild mess because some years people would hoard money because it would be worth more next year.
Ok, what if the government tried to estimate exactly how much money got lost and printed the same amount, so you (in theory) always have the same amount of money going around.
Turns out this also is a bad idea in the long run. Because while money won't increase in value because there's a limited amount it becomes a 0-sum game. Why is that a bad thing? Well, if there are only 1 trillion dollars in circulation, each dollar I hold and refuse to use increases the value of every other dollar I have, so people with lots of money would hoard their money as much as possible to make the rest worth more, allowing him to earn more and store more and turn the currency into a deflationary currency again.
This leaves us with only one option, the government has to print more money than what's lost, this makes money be worth less with time, but also forces people to invest their money instead of hoarding it, because otherwise it's worth less, and if they invest it it's circulating in the economy so in theory everyone wins.
Great answer. I thought I had a grasp, but you helped flesh out my understanding, thanks
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When Capitalism was being theorized, a guy name Sonic Smith had discovered that over time as more money is minted, it loses value, and thus inflation. Thus, when it came time to implement capitalism, it became the 34th rule of capital that was defined.
To learn more, google "rule 34 sonic inflation"
I think you've maybe confused being almost 60 with being an idiot.
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I think you've maybe confused being almost 60 with being an idiot.
Sorry, whenever inflation gets mentioned the maggots in my brain force me to make a sonic inflation joke
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When Capitalism was being theorized, a guy name Sonic Smith had discovered that over time as more money is minted, it loses value, and thus inflation. Thus, when it came time to implement capitalism, it became the 34th rule of capital that was defined.
To learn more, google "rule 34 sonic inflation"
In 1989, A Japanese Professor who teaches in the University of Tokyo named, Rantaro Futanari, found a loophole in the Japanese Economy. Prof. Futanari found a way to legally counterfeit money without any repercussions. Prof. Futanari still does this and is a well known billionaire. Want to found out how he does it? Just search for, "Futanari Inflation" in Google Images.
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Nearly 60 and I still don't "get" inflation. Can anyone explain?
Thank you.Greedy people being greedy is what inflation is.
They will say this and that economic factor.. blah blah blah...it's all bullshit. Greed is the reason for inflation.
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Nearly 60 and I still don't "get" inflation. Can anyone explain?
Thank you.There are a lot of explanations about how it happens.
But the word, inflation, only means that the same amount of money "tokens" can buy less amount of "good and services" in relation of two different moments in time.
How that can be caused is where complication and expectations (and a LOT of political propaganda) begins.
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Ok, let's start simple and work our way to inflation. Let's imagine a world where the government prints a certain amount of money, to make things easier let's say 1 trillion dollars, and no more will ever be printed, this makes it so that in absolute terms you can think as 1$ as a 1/1 trillion so you can buy stuff relatively to how common they are, if we produced 1 trillion kg of rice, then 1kg of rice should cost 1$, but if we produced 2 trillions then the price drops to 50 cents.
Cool, things make sense, however there are some problems with this approach, money gets destroyed, or otherwise lost forever, so in the long run $1 becomes rarer than 1/1 trillion, let's exaggerate that and imagine there are now only $1000, it doesn't make sense that a 1$ buys only 1kg of rice anymore. This is called a deflationary currency, and this is bad, because if you know this is the way money works you wouldn't spend your money because it will be more in the future.
Ok, let's try to combat that, let's then say that the government prints a certain fixed amount of money every year. Some years less money would be lost, those years the value of money would decrease, other years more money would be destroyed, and those years the money would be worth more.
What happens now? Well, people would speculate, and not spend in some years, overspend in others, and the economy would be a wild mess because some years people would hoard money because it would be worth more next year.
Ok, what if the government tried to estimate exactly how much money got lost and printed the same amount, so you (in theory) always have the same amount of money going around.
Turns out this also is a bad idea in the long run. Because while money won't increase in value because there's a limited amount it becomes a 0-sum game. Why is that a bad thing? Well, if there are only 1 trillion dollars in circulation, each dollar I hold and refuse to use increases the value of every other dollar I have, so people with lots of money would hoard their money as much as possible to make the rest worth more, allowing him to earn more and store more and turn the currency into a deflationary currency again.
This leaves us with only one option, the government has to print more money than what's lost, this makes money be worth less with time, but also forces people to invest their money instead of hoarding it, because otherwise it's worth less, and if they invest it it's circulating in the economy so in theory everyone wins.
wrote last edited by [email protected]Good illustrative answer, but some points are way oversimplified. Two main points you touched:
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Pricing. How goods are priced is a very complex subject. Your trillion rice vs trillion dollars kinda works but really isn't doing it justice. Like, who produce the rice? If there is a singular rice producer making all the rice, then it doesn't make sense to price the rice any value. Because even if you pay them, there's no way to spend that money - there's just nothing else to buy. If that trillion kg of rice is produced by us each individually, and we each have enough rice for ourselves (i.e. we don't have desire for anymore rice), then rice would the priced at 0 no matter how much money there is. because there is no demand for it. Another scenario, I have 50 apples, and you have 50 kg of rice, let's say I have $50, and that's all the money in the system (fancy jargon: M0 = $50). I pay you $50 for your rice, and you pay me $50 for my apples, and we think that's a fair trade. Would that mean each kg of rice is 1/50 of all goods? And we can keep going, I can have trillion apples, and you can have trillion kg of rice. We will still be able to exchange all of them with a single $50 bill, it's just going to take tons of transactions.
Basically, price is determined by supply and demand (caveats apply), and how money supply plays into that is complicated and way above my pay grade. I just want to note that price increases aren't always caused by more money, it could also mean an increase of demand, or a decrease in supply. -
Is inflation good? You mentioned people might hoard money to drive up value, but that's not the only thing. First of all, inflation drives people to spend money (or at least that's what's commonly believed anyway), because you'd want to spend money today if it's going to worth less tomorrow. This drives demand, and if there's more demand people try to create more supply to meet it, thus the economy grows (I have to emphasis this is an extreme oversimplification). Secondly, even if there is no hoarding, as the productivity of the society grows, money inherently becomes more valuable - no hoarding needed. So you need to create more money to keep price stable anyway.
Also, when people talk about printing money, I feel they mostly are thinking about like printing more physical money? That's just not the case these days. In fact, most of the money in circulation nowadays isn't even physical. The primary way central bank creates money is by creating debt. Say I have the only $50 bill, and I wasn't planning to spend it. So I lend it to you, now you have a $50 bill, and I am entitled to get that $50 back in the future. Now the money supply doubles, without printing anymore physical money. When the central bank and the government do it, it's called Quantitative easing.
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It was done in an effort to make it easier to keep me ney in circulation and foster economic growth.
There was no large plan or design to it. It was done because it's profitable and there was no rule against it. This was a time before banking and government was so heavily intertwined through regulation.
wrote last edited by [email protected]if FRB actually ends up being profitable, that means it has created positive values in the society, so that in of itself is not bad. though it does have problems: 1) it creates a asset owning social class, whose values increasing by owning shares in business (which are effectively debts). 2) when it fails (i.e. when banks suffer losses), it can fail spectacularly, again see 2008 for more details.
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Nearly 60 and I still don't "get" inflation. Can anyone explain?
Thank you.wrote last edited by [email protected]The way I understood it, it's a passive tax done by central bank. They take the value of money you hold and depreciate it without touching it. They do it year by year or depending on what government your in. It's a cruel system that encourages people to spend now. Else your 1$ will be less than 1$ in the next year it's cruel to those people living paycheck to paycheck wanting to save money for big purchases are forced to take loans with interest else you will always be playing catchup making you pay more in the long run. Honestly why would be so worried about people not spending we have survive long before capitalism even exist this system also encourage the destruction of our environment.
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Good illustrative answer, but some points are way oversimplified. Two main points you touched:
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Pricing. How goods are priced is a very complex subject. Your trillion rice vs trillion dollars kinda works but really isn't doing it justice. Like, who produce the rice? If there is a singular rice producer making all the rice, then it doesn't make sense to price the rice any value. Because even if you pay them, there's no way to spend that money - there's just nothing else to buy. If that trillion kg of rice is produced by us each individually, and we each have enough rice for ourselves (i.e. we don't have desire for anymore rice), then rice would the priced at 0 no matter how much money there is. because there is no demand for it. Another scenario, I have 50 apples, and you have 50 kg of rice, let's say I have $50, and that's all the money in the system (fancy jargon: M0 = $50). I pay you $50 for your rice, and you pay me $50 for my apples, and we think that's a fair trade. Would that mean each kg of rice is 1/50 of all goods? And we can keep going, I can have trillion apples, and you can have trillion kg of rice. We will still be able to exchange all of them with a single $50 bill, it's just going to take tons of transactions.
Basically, price is determined by supply and demand (caveats apply), and how money supply plays into that is complicated and way above my pay grade. I just want to note that price increases aren't always caused by more money, it could also mean an increase of demand, or a decrease in supply. -
Is inflation good? You mentioned people might hoard money to drive up value, but that's not the only thing. First of all, inflation drives people to spend money (or at least that's what's commonly believed anyway), because you'd want to spend money today if it's going to worth less tomorrow. This drives demand, and if there's more demand people try to create more supply to meet it, thus the economy grows (I have to emphasis this is an extreme oversimplification). Secondly, even if there is no hoarding, as the productivity of the society grows, money inherently becomes more valuable - no hoarding needed. So you need to create more money to keep price stable anyway.
Also, when people talk about printing money, I feel they mostly are thinking about like printing more physical money? That's just not the case these days. In fact, most of the money in circulation nowadays isn't even physical. The primary way central bank creates money is by creating debt. Say I have the only $50 bill, and I wasn't planning to spend it. So I lend it to you, now you have a $50 bill, and I am entitled to get that $50 back in the future. Now the money supply doubles, without printing anymore physical money. When the central bank and the government do it, it's called Quantitative easing.
Well, yes, of course I simplified it a lot, it's a very complex subject and I was just trying to illustrate why some inflation is needed even in a simplified version of the economy. This is such a complex topic that even your answer here is simplifying the subject, for example in the matter of pricing you also didn't mention added costs, for example storage or transportation in the case of the rice, or price gauging or other stuff that breaks the free market such as monopolies or coalitions. But at the end of the day all of that added complexity doesn't interfere with the point that I was making that even if you could keep prices stable some asshole would hoard money to drive the prices down.
As for the inflation thing, those two are exactly the same, i.e. try to prevent people from hoarding and incentive people to spend, so your first part is exactly the same thing I mentioned. As for the second point, sure, but productivity doesn't increase equally across the board, something might have had a huge breakthrough and doubled productivity while other might have had a setback this year specifically and decreased it, even if productivity increased equally for every single product, and more money was printed to match you're back in the same example of keeping price steady that causes people to hoard money to drive the price up.
Finally, yes, I purposefully left banks out of the equation because then all bets are off since they play very complex games with other people's money.
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Well, yes, of course I simplified it a lot, it's a very complex subject and I was just trying to illustrate why some inflation is needed even in a simplified version of the economy. This is such a complex topic that even your answer here is simplifying the subject, for example in the matter of pricing you also didn't mention added costs, for example storage or transportation in the case of the rice, or price gauging or other stuff that breaks the free market such as monopolies or coalitions. But at the end of the day all of that added complexity doesn't interfere with the point that I was making that even if you could keep prices stable some asshole would hoard money to drive the prices down.
As for the inflation thing, those two are exactly the same, i.e. try to prevent people from hoarding and incentive people to spend, so your first part is exactly the same thing I mentioned. As for the second point, sure, but productivity doesn't increase equally across the board, something might have had a huge breakthrough and doubled productivity while other might have had a setback this year specifically and decreased it, even if productivity increased equally for every single product, and more money was printed to match you're back in the same example of keeping price steady that causes people to hoard money to drive the price up.
Finally, yes, I purposefully left banks out of the equation because then all bets are off since they play very complex games with other people's money.
Right. Sorry if my post sounded like criticizing. I didn't intend to, just wanted to add to your answer.
And yeah, countless books have been written about this subject, no way we will be able to give a even remotely complete picture here. Countless books have been written about this subject.
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Nearly 60 and I still don't "get" inflation. Can anyone explain?
Thank you.There are two types of inflation. Global that comes from increases in the money supply by countries that used to be by printing money but in modern times is done through lending. When a bank loans money it only needs to have a fraction of the loan amount as a hedge but otherwise the money is essentially created and there is now more money to go around. There is also a more local inflation effect that happens individually on items due to supply and demand. The thing about that effect is barring money supply increase its relative. People have to choose to put their money toward the particular thing even as the price increases for some reason. Like paper towels and toilet paper during a pandemic. So it is usually temporary but not always as sometimes things become more expensive to make. For example if soil degradation happens then food cannot be grown in as much abundance than before and prices go up. Since people have to eat they will forgo lesser necesities if necessary. Also for example in the past when we used to drill for oil it was near the surface and easily accessible. Using the energy of one barrel of oil would net you over 100 barrels of oil. Today the return is based on source but we have sources that return only single digit barrels per barrel. One reason saudi does so well is they have consistently had the higher returns on a per oil basis. Theirs have still gone down but comparatively maintained a good rate of return. This is also how come hardwood used to be relatively cheap but since it takes a long time to grow (approx a century) it is now very expensive and most people will use softwoods or some sort of alternative. So shrinking resources or more effort to get resources along with more people means higher relative value for things people need. Earth overshoot day is now in july and it was the early 1970's when we last used only the amount of renewable resources that the earth renewed in a year so we were break even back then and have to gut things more and more as times goes by https://overshoot.footprintnetwork.org/. Now technology can find us new options but if that was happening well enough we would still be using no more than what the earth can recover from each year. Its not completely technologies fault as we have seen an effect that when we get more we use more. So like you get led lights but then people have more lights which are on more often or we get some other technology that uses more power or such.
