So I’ve been reading about inflation. While I know that printing new fiat currency fuels inflation, I’m not sure exactly why. Let’s say I have ten people and ten thousand distributed entirely between them, but not equally because that isn’t the way the world works. They participate in an economy self contained amongst them, and I show up with an extra 10% of the total economy and start to participate by lending this money to the ten people in a discriminating way. What happens to their purchasing power and why?
Discussion
Read creature from jekyl island
The ratio of money units to goods / services changes in favor of the people who get the new units. The result after it stabilizes is that people who didn’t get the new units can’t buy as much as they used to be able to buy with the same amount of money.
The people who got the new units have the same problem, but they have more units. And because they have absorbed the loss from those who didn’t get the new stuff, their total buying power also went up (not just money unit count)
Yep, exactly. Bitcoin fixes this. 😁 #bitcoin
This is why printed money given to war efforts, which distills to the wealthiest 1% results in currency inflation with increasing consequence the further you are away from the apex of wealth. That makes sense. Thank you.
Try a simpler example.
The 2 of us are an economy.
You have $10, and I have $10.
I print $20 for myself.
The amount of goods and services in our economy didn't change, but you went from having 50% of the money to 25% overnight. While I went from 50% to 75%. i.e. I stole half your purchasing power. (This is the initial fraud/theft)
Now as I spend the money, prices start to rise simply because there is more money chasing the same amount of goods and services. (This is the Cantillon effect). If I don't spend the extra money, there will be no price inflation, just wealth redistribution.
That makes sense. Amazing that the government gives themselves the power to apply exactly this premise and the people, largely, do nothing to stop it.
They rely on people believing this one fallacy:
"My spending is for the greater good, while your spending is selfish."
They push that message relentlessly through propaganda, and create masses of naive/gullible commies.
While I think that community is important, and that less capable people can benefit from charity coming from the top, that charity should be motivated by guilt or pity, or from a sense of plentiful resource generosity, it should never be compelled or proctored by any government.
There is 10% more dollars chasing the amount of goods / services. Economic competition for finite goods / services ensues and prices are bid up in the market as participants use their additional currency units to seek the things they want.