Probably, in some point of your life, you have already heard the word "inflation"... Maybe, you don't know what is it, or even, have a wrong knowing about what is inflation.
So, this is an article where I'll explain in short: what is inflation, who is responsible for inflation, and how it is one more way to steal your money.
Instead of popular inflation knowledge, "generalized increase in prices", inflation is just the loose of money value... And this happens with expansion of the monetary base.
Expansion of the monetary base, in short words, it means add more money in the economy... Or, as is popularly known... Print money.
See, basically, money is just a representation of products and services in the economy of a country. It means that expand the country's monetary base (This is, print physical or digital money), won't change the amount of products and services at the economy.
To exemplify, imagine that today, as magic, all people in Earth, earn 1 million dollars... All this people will be rich? Well, no... EVERYONE earned it... It is almost as if it makes no difference, since the only change is the amount of colored paper (cash and bank numbers) in the economy... however, all the products, services and any other thing that money can represent, still are the same.
It just causes all prices to be readjusted to the new reality.
In other words, 1 million dollars don't have the same value as before everyone earned, magically, this money.
How does it work in real life?
We all, at some point, had the brilliant idea to print money and go to the supermarket to buy something... Probably, someone warned you that doing it, you would commit a fraud and this is a crime.
On the other hand, when governments do it, we give a cute name, "expansion of the monetary base", as well as we also give cute names to: national pyramid scheme (Social Security); Institutionalized worker theft (CLT); The assault every time when you go to buy a medicine (tax on medicine) and so on...
So, in short words, the government print more and more money... However, the products and services on the economy, still are the same. When doing it (expand the monetary base), automatically, the government is devaluing the country's currency... In other words, they're creating inflation.
Every time when there is an expansion of the monetary base, a devaluation of the currency is happening.
Why the government does it?
Instead, as many people think, the government isn't a "good" and "dumb" being... When they create inflation, automatically, are stealing you through something that we call by "inflation tax"
See, when the expansion of the monetary base happens, there are people who receive first this "new money"... Usually, these people are public workers and government-friendly companies.
When these people spend this money, they but things with the old price (before the expansion of the monetary base)... By that, the next buyers will have a tiny increase of price because the law of supply and demand
This is known as "Cantillon effect", where the firsts receivers impose a tax on the lasts receivers.
The government benefits from this as a way to finance its spending and debts.
How does it also affect you?
Well, we know how important is save money... Be investing at stock market, buy bonds, save at savings account or whatever...
However, save you money in a economy who has high levels of inflation, creates a problem for you...
As I told, inflation, just one more way of the government steals you... Let's think you save today, a thousand dollars under your mattress.
Assuming that Brazilian inflation will be around 6% per year during 10 years... despite you have the same amount of a thousand dollars under your mattress... In 10 years, this money will have the value of $400...
In other words, in 10 years, your $1000.00 just will buy the equivalent of $400.
Maybe, you are not believing in me, or didn't see how creepy is this... So to take a example:
As you could saw, in a short time of 27 years, the BRL was devalued (inflation) in 85%
In other words, nowadays, $100 buy the same as $15 bought in 1994.
This is how your money is and will be, burned almost without you realizing it.
Conclusions and observations:
Instead of what the government try to say to you, inflation is not the "generalized increase in prices"... This is just the consequences. The expansion of the monetary base is what creates inflation, devaluing the currency and taking to generalized increase in prices
In other words, the only responsible and interested in creating inflation is the Government, because, doing it, allows them to create more debt and expand the state machine.
Understanding this, is the basic requirement for you to stop being cheated and robbed constantly.
This is the first article to explain alternatives that we can use to escape institutionalized theft that the government does… In the future, I will bring new articles explaining about investments and about something I consider as real money, “Bitcoin”.
If you have any doubt, let in comments.
If you liked, help-me sharing this text.
Written by: Lucas Garcia
Published: jornadalucasgarcia.com
Follow me on Instagram: @jornadalucasgarcia
Follow me on twitter: @jornadalucasgar
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