What is inflation?
Inflation refers to increase of price of goods over a period of time.
More money is required to purchase same amount of goods next year as compared to this year.
Rules of game are being changed
Note that the basket of goods remain same however the amount of money required to purchase the same amount of items has increased.
In other words money looses its value with time as same amount of money is insufficient to purchase basket of goods at a later point of time.
People lend and borrow money in any functioanl exonomy. Those who borrow $10 in present and pay back in future benefit. Whereas, those who lend $10 in present and receive $10 in future loose.
This effectively transfers wealth from lenders to borrowers.
Who benefit from inflation ?
Borrowers
Lenders usually charge intrest for being compensated for default risk and inflation.
However not all borrowers benefit. Regular folks take loan from commercial banks on floating intrest rate. Banks adjust floating interst rates as per prevailing inflation to get adequately compensated. Such borrowers do not benefit from inflation.
Some borrowers also borrow at fix intrest rate. Such borrowers loose if inflaion is lower that the intrest rate.
Whereas they benefit if fix intrest rate is less than inflation.
Over the past century fed funds at which governments and large corporations borrow has been falling.
Whereas inflation has always been more than the fed funds rate.
Hence governments and large corporations who could get access to these cheap intrest rate benefitted immensely.
Those who receive freshly printed money
Long term inflation is caused by central banks printing money and giving it to governments and friends.
Those who receive this money benefit from the free money and are able to spend it while the prices of goods are still low. Prices of goods rise as this money is spend and flows through the economy.
Whereas common public has to bear the burden of higher prices – inflation.
Who are hurt by inflation?
Those who benefit from inflation, benefit at expense of ignorant everyday folks.
Today the corrupt have ever more tools at their disposal and everyday folks are ever more ignorant than ever. As a result rich poor divide is wider than ever.
Fix income earners
Most salaried employees have long term salary contracts that do not get adjusted frequently with inflation. This includes government employees, pensioners and corporate employees who are struck in long term contracts that do not keep up with inflation.
As time passes their fixed income buys less and less because of inflation. Employees/pensioners receiving fixed income suffer whereas corporations/governments paying fixed income benefit.
In most cases income is adjusted according to inflation just for name sake:
- Adjusted once a year.
- Only part of income is adjusted.
- Inflation number reported by governments are much less than real inflation.
Savers
Saving for future is a sign of intelligence. Most animals save food for the winters when there will be shortage of food at the expense of foregoing consumption today.
However central banks have taken away the option of saving from humans. Those who forego present consumption and save for the future loose as inflation eats away their savings.
To maximize the value of your income one must spend now and keep running on the treadmill just to stand still.
Investors
Most savers become speculators in stock market and real estate when other option is to see value of your savings fade away in a bank.
Most loose money in a rigged game where odds are stacked against common man.
Those who are able to somehow avoid losses have to pay capital gain tax when they sell their assets even if they make a negative return adjusted for inflation.t
Conclusion
Inflation is not a one off event. Losses of loosers and benefits of winners from inflation are compounded on a daily basis.
As a result over a periood of time rich become richer and poor become even more poorer.
More ignorant you are the easier it is for governments and corrupt politicians to take advantage of your ignorance.
I wish the world was a more honest place and you could avoid spending time and energy on learning how the corrupt system works just to protect your savings. However does not seem to be any other way but to learn how the central banks steal from us.
