Sunday, October 23, 2011

Inflation


We all tend to think of inflation as a rise in prices. In fact, rising prices are a result of inflation.

Inflation is an expansion in the money supply.

Money supply expands when it is created into existence without a corresponding rise in goods and services. Like when the Federal Reserve quietly injects more than 20 Trillion dollars (by some estimates) into the banking system over a three-year period. The money did not come from anywhere. It didn't exist until the Fed said it did.

When there are more dollars, but there aren’t more goods, (like gasoline, sugar, and corn) the prices of those goods rise because there are more dollars competing for an unchanged number of goods.

In the end, goods have not gained value. They aren’t more valuable today than they were last year. Instead, the value of the dollar has fallen. It buys less than it did before.

Expansion in the money supply = currency losing value. That is why prices are so high and rising.


For more comprehensive information on inflation, see John Williams' Shadow GovernmentStatistics .

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