Why Is Inflation Picking Up So Quickly?
The meaningful is to understand what inflation is. The definition of inflation that economists use is “too much money chasing too few goods.” If you break this down, you will notice two parts. There is the quantity money part and the goods part. The information “goods” method anything that you buy with money, which could be things, sets, skill etc. Notice that there is a relationship between the money and the goods. This relationship is governed by supply and need, but an easy way to think of it is that there has to be a balance between the two things in order to have the value of goods keep stable.
How can too much money come to pass? The question that comes from this is: How does money get produced? Today’s money is called fiat money. Fiat method “by decree” or “by law”. When you see the words used “by law”; this can be interpreted as “by force”. Since laws are enforced by the police or the military which literally method they will cause you harm if the laws are not followed. Think of the mafia but legal. This method that we don’t have any choice with respect to the money we are using if we want to follow the law. By definition, other forms of money cannot be used for transactions or buy of goods. Try using gold or silver coins or cryptocurrencies to pay taxes in Canada. Only Canadian dollars can be used. The other meaningful term to remember is that today’s money is a debt unit. When you hear the information debt, it method someone is owed the money that has been produced, as in a loan. There is interest tied to that loan, similar to all other forms of debt. Since the interest is on a country’s money, the interest is borne by the country – which method the taxpayers of the country. This is where the income tax system comes in. Have you noticed in the last 2 years how much additional money has been “produced” around the world? Is there a limit to how much money can be produced? There is not, and this is why too much money can be produced rather easily and without much oversight.
What about the goods? Due to the government response to the pandemic, people cannot produce the goods that they used to produce because they are forced to stay home or close their businesses. The workers are also paid to stay home instead of producing. You can add reduced need from people not being able to shop and the amount of goods being produced will continue to spread. Recently, there are shortages of parts and shipping delays. Due to the just in time headache that is logistics today, any tiny disruption will create a ripple effect that will compound exponentially the time lag of getting goods produced. The more complicate the product and the more reliant it is on logistics, the longer the delays and the larger the disruption.
What you are witnessing now is both forces coming together at once – too much money and too few goods. Is this going to last? Given that the governments are going to create more debt to pay off the old debt, this creates an exponential effect that will approach an unlimited amount of money being produced. This also method that the current fiat money will become more worthless and may be abandoned. The inflation will last until the form of money is changed to something scarce and finite, and the goods produced are stabilized. The two parts of the equation would then into balance again. To counteract the forces of inflation, this method less monetary or debt creation combined with more goods being produced.