SIMPLE FACTS ABOUT INFLATION

When most people talk about inflation, they are usually referring to the higher prices they pay for goods and services. That is not inflation.

Most of what passes for explanations of inflation and its causes are convoluted and confusing. It is like looking into a pond of muddy water and trying to ascertain what lurks blow the surface.

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Below are some facts about inflation that should help clarify things:

INFLATION FACT NO. 1 - INFLATION IS CAUSED BY GOVERNMENT

It started with clipping coins; a practice whereby existing coins in circulation that had been collected via taxation were 'clipped' and the fragments were melted down and recast into new coins.

In the late 18th century, the French government began a disastrous issue of paper money that led to hyperinflation (Fiat Money Inflation In France) and revolution.

Reeling from the effects of World War I and in an attempt meet their financial obligations, the Weimar Republic tried to print their way to solvency. Their efforts spawned runaway inflation and economic collapse for Germany a decade before the Great Depression.

Today, inflation is the product of Central Banks. Inflation is accomplished by the continuous expansion of the supply of money and credit.

INFLATION FACT NO. 2 - ALL GOVERNMENTS (Central Banks) INFLATE AND DESTROY THEIR OWN CURRENCIES

Since 1913, the debasement (expansion of money and credit) of the US dollar by the Federal Reserve has brought about a loss in purchasing power of ninety-nine percent. Generally speaking, it costs one hundred dollars today for what would have cost one dollar a century ago.

Another way to say this is that one dollar today is worth only one cent compared to a century ago.

INFLATION FACT NO. 3 - THE EFFECTS OF INFLATION ARE UNPREDICTABLE

The higher prices for goods and services which most people casually refer to as inflation are not inflation at all. They are an effect of inflation.

The higher prices result from the loss in purchasing power in the currency (US dollar, etc ).

Over time, the intentional inflation practiced by central banks leads to effects that are volatile and unpredictable. (see The Fed's 2% Inflation Target Is Pointless)

A BETTER DEFINITION OF INFLATION

With the facts above clearly in mind, we now can offer a better definition of inflation:

"Inflation is the debasement of money by governments and central banks. All governments inflate and destroy their own currencies.  The inflation practiced  by central banks is intentional and continuous. The effects of that inflation are volatile and unpredictable."