Table of Contents

What is inflation?

Inflation refers to increase of price of goods over a period of time. More money will be required to purchase same amount of goods next year as compared to this year.

Don’t be fooled government and media will try to confuse you but long-term inflation is caused by one thing and one thing only – Central banks printing money and giving it to friends or government.

Some inflation is a good thing !!

Most central banks aim to print just enough money so that inflation is around 2 to 6 percent, which they refer to as price stability.

2% inflation seems to be the magic number that does not cause so much pain that it results in revolts.

According to the government, people will save and stop buying stuff if they do not erode value of their money by 2% every year.

This will result in companies making less profit, which will lead them to fire employees, who will not be able to buy stuff resulting in a downward spiral.

However, this will happen only with companies that are making useless products. Genuine companies making useful products will continue making profit and growing.

For example, there was a time when phones were bulky, slow and expensive. Now they are much faster, more beautiful and cheaper. In future, they will be even better and cheaper.

Knowing that we can get better mobile for less money in future did not stop us from having a mobile now. This is because humans have a limited lifespan of around 80 years –  they can not wait indefinitely.

We do not need central banks degrading value of our money to force us to buy stuff we do not need. This is the reason most of our houses are full of stuff that we do not use.

Natural course is deflationary !

It is difficult to imagine but in an ideal world things getting cheaper every year.

Imagine I am a new farmer. I plant crops for the first time this year. I harvest the crops and sell them in the market.

I have gained 1-year experience that will help me in becoming a better farmer and having a better harvest next year. I will be more efficient and able to have more harvest with less effort.

I will sell better quality harvests at a cheaper price in the market.

Similarly, all other things also get cheaper over time eventually everyone can afford them, raising the standard of living for everyone in the world.

This was actually happening for most part of human history. Today most of us can afford lightning, hot water etc that was not accessible to even the richest king in earlier times.

Central banks print so much money that instead of things getting naturally cheaper we are accustomed to things getting expensive and feel that it is normal.

Inflation is like a treadmill

Central banks and governments are degrading the purchasing power of our money. This leaves us with 2 options:

  • Spend money on useless things – get rid of money before it loses value and keep working to earn money in the future.
  • Save money and let it lose its value every year.
  • Try to keep up with inflation by becoming a gambler in stock or housing market.

Elders blame younger generation for not saving, however, it is not their fault that they are living through a period of high inflation that degrades value of their saving.

Inflation robs us of our time

Time is the only limited resource. We can earn infinite money and gather unlimited resources if we have infinite time.

Inflation robs us of our option of working hard, saving and retiring early. We have to keep working as there is no option of saving for the future.

Highers time prefrence makes us less human

Humans are the only animals that plan for the future in the manner that they do. They forego present consumption to save for the future self and their offsprings.

This is how all of the civilization was made – someone somewhere foregoing present consumption for the future.

Inflation robs us of the ability to save for the future. It forces us to use up our money today.

This changes how we think and act in all areas of life from modern art to speed dating.

This is what our generation considers dance.

This is what our generation eats.

Maagzines are sold to us promising abs in 28 days, 8 minutes meal recepies etc.

Inflation robs us of our ability to think for the future.

People do not take care of their stuff and environment. Thieves do not think about long-term consequences of their actions as a result society has to spend resources on policing that could have been spent in other places.

No one can tell how the future will unfold, it is uncertain, and not saving makes it even more uncertain.

Rich and poor divide

It is not like central banks print money and give it to the poor.

Most people are ignorant and do not understand central banks. Media distracts them with BS so that they do not pay attention to what really matters.

And when they have no option but to speak on TV – they lie and manipulate the numbers.

Meanwhile, when the common people are ignorant and misinformed, central banks print trillions of dollars and handover to their friends.

As a result rich get even more richer and poor get even poorer as the value of whatever they manage to save gets devalued.

Inflation hurts poor the most

Poor people have fix salary contracts paid to them on monthly basis in fiat. They live hand to mouth and save whatever they can in their bank accounts. Inflation degrades the value of their savings and salary with time.

Whereas rich people take their salaries in other forms like equity and options whose value increases with time and are exempt from taxes. They save in precious metals, real estate and equity whose value increases with inflation.

Government becomes big

Governments have two options to get money to fund projects:

  • Tax citizens
  • Print money

Taxing citizens is difficult as citizens do not like paying higher taxes and hold governments responsible for the money they pay.

Printing money is too easy as citizens do not understand central banking. Suddenly governments can print unlimited money to fund any project and fulfill everyone’s demands.

Governments do not have to be prudent and spend deliberately. Like a drunk shopper, they can throw money at whatever project they want.

As a result, the government keeps getting bigger controlling even greater parts of citizens’ life  – from the food we eat to cars we drive.

Malinvestments at all levels

A normal business may succeed or fail depending on the amount of profit being generated by the business. A business owner will not be able to continue to run the business if he is not able to sell products in large quantities at a price that the market is willing to pay.

The business will fail if the market does not value the product it sells. This is a signal to the owner that people do not desire his product and he should direct his energy to some other venture.

However, there has never been any government project that has ever failed. Is it possible that the corrupt politicians so disjoint from reality are able to launch one successful project after another?

Unlikely

The government can print as much money as they want to fund any project. No wonder these projects never fail when the input cost is zero.

Benefits debtors

Till now the advice was to live within one’s means and save for the rainy day.

The advice has been turned upside down.

People who are prudent and save for the future are punished. Whereas debtors benefit as they pay back devalued money, if they pay back at all.

Unfair advantage to corrunpt

Government does not evenly distributes the printed money. They do not have to. The ignorant citizens do not ask for it and do not hold government accountable for how it chooses to spend the money.

Obviously the corrupt politicians that worked so hard to position themselves close to the money printer cannot be expected not to give printed money to themselves and their friends.