Why if I have $100 right now, 10 years later that same $100 will have less purchasing power? Why can’t our money retain its value over time, I’ve earned it but why does the value of my time and effort go down over time?
In: 5591
Inflation specialist Here, I live in argentina with inflation over 100%.(real one probably almost twice as much)
Imagine everyone could print their own money just by paying the ink and paper cost. Would you sell anything you own for money? Probably not, since if you wanted money you would just have to print it for almost zero cost. The value of the money is that is a scarce resource.
Now we know that, we know how to keep the value of money, we just never print any more money and money should retain its value, right? Sort of yes, but actually wrong, though that is how some cryptocurrencies are supposed to work. People are always working and generating goods to be sold for money, so if we produce a lot, we cannot sell since no one would have money to pay for it. Some branch of government is the one in charge to “print” money according to the growth, but since no institution is omnipresent, and all knowing they never know exactly how much money to print to mantain its value.
There is also another issue, what happens for example in the case of a pandemic or any other catastrophe, where the state needs money to pay for things? Hopefully they have a rainy day fund, but if they don’t, they will “print” a shit ton of money.
One way governments have found to generate money according to production is through debt, if people are borrowing money to invest, they are supposed to be generating new growth. But this one is a long topic that is out of scope.
Latest Answers