The key is to understand what inflation is. Economists define inflation as “too much money chasing too few goods”. If you break it down, you’ll notice two parts. There is a quantity currency part and a goods part. The term “goods” means anything you buy with money, be it things, services, expertise, etc. Note that there is a relationship between money and goods. This relationship is governed by supply and demand, but a simple way to think about it is that in order for the value of a commodity to remain stable, there must be a balance between the two.
How to spend more money?
The question that arises from this is: How is money created? Money today is called fiat currency. Fiat means “statute” or “law.” When you see the word “by law”; this can be interpreted as “by force”. Since the law is enforced by the police or military, this effectively means that they will do you harm if the law is not followed. Think mafia but legal. This means that we have no choice when it comes to the money we spend if we want to obey the law. By definition, other forms of money cannot be used for transactions or to buy goods. Try paying taxes in Canada with gold or silver coins or cryptocurrencies. Only Canadian dollars are accepted. Another key term to remember is that money today is a unit of debt. When you hear the word debt, it means owing money that someone has created, such as a loan. Like all other forms of debt, this loan is tied to interest. Since the interest is on a country’s currency, the interest is borne by the country—that is, the country’s taxpayers. This is where the income tax system comes in. Have you noticed how much extra money has been “created” around the world in the past two years? How much money can be created? No, which is why too much money can easily be created without much oversight.
What about the goods?
Due to the government’s response to the pandemic, people are unable to produce the goods they used to produce as they are forced to stay home or close their businesses. Workers are also paid to stay home rather than produce. You can add the reduced demand that people can’t shop, and the amount of goods produced will continue to decrease. More recently, there have been parts shortages and shipping delays. With today’s logistics headaches, any tiny disruption can have a knock-on effect, multiplying the time delays in producing goods. The more complex the product and the more dependent it is on logistics, the longer the delay and the greater the disruption.
What you’re seeing now is two forces coming together at the same time – too much money and too few goods. Will this last? Given that the government will create more debt to pay off old debts, this will have an exponential effect, close to unlimited money creation. It also means that current fiat currencies will become less valuable and may be abandoned. Inflation will continue until the form of money becomes scarce and limited, and the goods produced are stable. The two parts of the equation will again come into balance. To counteract the forces of inflation, this means creating less money or debt while producing more goods.
Do you want to: Learn how the world of money really works without taking time-consuming or expensive study courses? Discuss what you want to achieve based on your vision? Restructuring your finances to achieve your goals? Not affiliated with any agency or any product advice – independent advice?
If you answered yes to any of these questions, please contact me at: email joetheinvestor.today@gmail.com, my website http://www.joetheinvestor.ca or phone 647-286 -8020 Independent consultation on your options. NOTE: This article is for people who want to learn about the world of finance and how to do research on their own. If you want to buy or sell an investment product, or have specific advice on investment products, tax or legal issues, please consult your investment advisor, accountant or legal advisor.
