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?
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ELI5 – We need to have inflation in order for people to spend their money. If money would constantly gain value, people would rather stockpile money then buy goods. If people don’t buy goods, economy can not work. Therefore inflation is absolutely necessary in our society. But it needs to be kept at a very slow pace, so people don’t actually notice their money becoming less and less worth, or you create fear of everything becomming overly expensive.
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.
Inflation is completely artificial. We essentially didn’t have it before WW2. Yes, it existed, but currency would inflate and deflate back to about the same levels. At some point, the central bank–an unelected private-public partnership–decided that “a little” inflation every year would be good for the economy. As a ‘side effect,’ this dilution of the currency greatly benefits the 1%. New money enters the system first for the benefit of these people and the entities they control. It’s a liability, but ooooooh would I like to have a liability like that. Essentially free money to create assets. You have to be a dribbling moron to not be able to make money off that kind of cash, especially when the government bails out any kind of failure via direct cash payments, buying corporate debt and artificially propping up investment markets. This is rationalized because JOBS.
ELI5: what’s occurring is very similar to what happened in the late Roman Empire. Every year a little silver is shaved off the denarius to satisfy the demand for spoils (doing essentially nothing and sucking out wealth) of the elite class in a patronage/oligarchy system. For them, they were addicted to slave labor and began to receive less slaves as the empire’s borders stagnated and became convoluted and difficult to maintain. For us, they’re addicted to high rates of returns and an ever-increasing quest for resources. They receive the benefits of a diluted currency and the rest of pay for it by working more for less. If inflation is effectively 100% for the poor (meaning all the items they are forced to buy have increased by that amount, e.g., bread) then a $15/hr job is effectively $7.50/hr. And if you think that wealth just disappeared and didn’t go somewhere else you’re an extremely naive true believer.
You should be very angry.
That or you should have aligned your life to have $1m in assets by now. Because you know, everyone can do that. We can all do nothing and live off dividends, trading and interest.
Because stealing half your money with regular taxes isn’t enough for the greedy corrupt government so central bankers increase the money supply and “tax” you via inflation as well.
People are forgetting the “like I’m five” part.
When everyone has the same trading card, it has no trade value. No one will take it. When you’re the only one with a certain trading card, everyone wants it, so it has tons more value. You can trade it for whatever you want.
Same principle. As more money is printed, it becomes less valuable. Pennies used to be important to track. Now there’s so many pennies that we get sick of seeing them. So they have less value. $100 used to be a rich person’s bill. Now everyone has $100, so it can barely cover groceries for the week.
Most basic way I can explain it, supply.
If there are 2 diamonds ONLY in the entire world, they are worth incredible amounts, if you have 200 billion diamonds out and about, they are worth jack shit.
If you have 1 Babe ruth rookie card in existance, its worth a fortune, if every person has a babe ruth rookie card, its essentially worthless.
The more and more of anything you have in circulation, the less it is worth. As the government keeps just literally printing money and tossing it out into the economy, its worth less and less by the day.
A lot of the responses here seem to think that inflation is created through an intentional process in which government prints more money, hence decreasing the value of the dollar. This is wrong. The printing of currency only accounts for about 4% of the money actually out there. Inflation is actually caused by increases in prices on goods and services, and then yes governments react by increasing the money supply (not just by printing currency, but by making large digital currency deposits into banks). If the money supply wasn’t increased, then the value of the dollar would begin to rise as there wouldn’t be enough money to match demand for purchases (exchange of money). Inflation itself is being controlled by price indices. Prices can’t and don’t stay fixed because of the concept of scarcity. As certain goods become more or less scarce, their prices fluctuate. The kind of inflation we’ve been seeing this last couple of years is largely due to monetary policies that actually attempted to keep inflation lower than the target of about 2% for roughly the last decade, coupled with the largest shake-up in production capabilities worldwide that we’ve seen in about a hundred years (due to COVID). This led to an inability of supply to match demand, which as we all know from basic economics causes price increases.
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