Why Is Inflation Picking Up So Quickly?

The key is to understand what inflation is. The definition of inflation used by economists is “too much money is running after too few things.” If you break it down, you’ll notice two parts. Quantity means money part and product part. The word “product” means anything you buy with money, be it things, services, skills, etc. Notice that there is a relationship between money and products. This relationship is governed by supply and demand, but an easy way to think is that there must be a balance between the two in order for product prices to remain stable.

How can too much money pass? The question that arises from this is: how is money made? Today’s money is called Fiat Money. Fiat means “by decree” or “by law”. When you see the words used “by law”; This can be interpreted as “by force”. Since the laws are enforced by the police or the military which literally means they will harm you if you do not follow the laws. Think mafia but legal. This means that if we want to abide by the law, we have no choice but to accept the money we are using. By definition, other forms of money cannot be used for transactions or purchases of goods. Try using gold or silver currency or cryptocurrency to pay taxes in Canada. Only Canadian dollars can be used. Another key word to remember is that today means a debt unit. When you hear the word debt, it means money owed by someone. There is interest attached to that loan, just like any other type of loan. Since interest is on a country’s currency, that interest is borne by the country – which means the country’s taxpayers. This is where the income tax system comes in. Have you noticed how much extra money has been “created” around the world in the last 2 years? Is there a limit to how much money can be made? No, and that’s why so much money can be made so easily and without too much scrutiny.

What about the goods? Due to the official response to the epidemic, people could not produce the products they used to produce because they were forced to stay at home or close their businesses. Workers are also paid to stay at home instead of producing. You can add reduced demand from people who are unable to shop and the quantity of products will continue to shrink. Recently, there has been a shortage of parts and shipping delays. Due to just the time headache that is logistical today, any small disruption will create a ripple effect which will drastically increase the time lag between getting the product produced. The more complex the product and the more dependent on logistics, the greater the delay and greater disruption.

What you see now is that both forces are coming together – too much money and too little stuff. Is this going to end? Given that governments are going to create more debt to repay old debts, this creates an indicative effect that will lead to the creation of unlimited amounts of money. This means that the current Fiat currency will become more devalued and may be abandoned. Inflation will persist until money becomes scarce, scarce and limited, and manufactured goods stabilize. The two parts of the equation will then balance again. To cope with the strength of inflation, it means producing more goods in combination with less money or debt creation.

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