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
ELI5:
There is all the money in the world
There is all the value in the world
The only way to have zero inflation or deflation would be to have those amounts always be equal
There are always more people and those people are always finding better ways to produce value, so we print more money to try to keep them equal
We can’t do better than estimate the increase in value, so we have to guess
We always guess high, because if there’s not enough money, it gets more valuable, not less. That’s called deflation.
Deflation makes people stop spending and save their money so much that the system stops working. Why spend when your money will be worth more next week? Why put it in a bank to save it, when it’s increasing in value right at home in the drawer?
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