The trick is to grasp the concept of inflation. The economists' definition of inflation is "too much money chasing too little things." There are two aspects to this if you break it down. There's the money part and then there's the things component. The term "goods" refers to whatever you buy with money, including items, services, and skills. It's worth noting that the money and the items have a connection. This relationship is governed by supply and demand, but to put it another way, in order for the value of products to remain stable, there must be a balance between the two.
How can it happen that you have too much money? The question that arises, as a result, is: How is money created? Fiat money is the name given to today's money. "By edict" or "by law" is what Fiat implies. When the words "by law" are used, they can be understood as "by force." Because laws are enforced by the police or the military, they will literally injure you if they are not followed. Consider the mafia, but on a legal level. This means that if we want to follow the law, we have no choice in terms of the money we use. Other types of money, by definition, cannot be used for transactions or the purchase of commodities. To pay taxes in Canada, try using gold or silver coins or cryptocurrency. It is only possible to use Canadian dollars. Another important concept to keep in mind is that today's money is a debt unit. When you hear the word debt, it refers to the fact that someone owes you money, as in a loan. That loan, like all other forms of debt, has interest attached to it. Because interest is charged on a country's currency, it is borne by the country - that is, the country's taxpayers. This is where the tax system comes into play. Have you seen how much extra money has been "produced" around the world in the last two years? Is there a limit to the amount of money that can be made? There isn't one, which is why a lot of money may be made quickly and without much scrutiny.
What about the merchandise? People are unable to create the commodities that they used to make as a result of the government's response to the pandemic since they are compelled to stay at home or close their enterprises. Workers are also compensated for staying at home rather than working. When you factor in decreasing demand from those who are unable to purchase, the volume of items produced will continue to decrease. Parts shortages and shipment delays have recently occurred. Due to today's just-in-time logistical problem, each minor setback will have a cascading impact, increasing the time it takes to have items manufactured dramatically. The more complicated a product is, and the more dependent it is on logistics, the longer the delays and the more significant the interruption.
What you're seeing right now is both forces colliding at the same time: too much money and insufficient commodities. Is this something that will last? Given that governments would generate new debt to pay off existing debt, an exponential effect will emerge, approaching an infinite amount of money being created. This also implies that the current fiat currency will lose value and may be phased out. Inflation will continue until the money supply is reduced to something scarce and finite, and the prices of things produced are stabilized. The two components of the equation would then be restored to their original state. To combat inflationary forces, less monetary or debt creation must be matched with increased production of products.
Do you want to: Understand how the financial world works without having to take a time-consuming or expensive course of study? What do you aim to achieve in terms of your horizon? Reorganize your funds in order to attain your objectives? An independent opinion is one that is not associated with any institution or product.
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