Guest Post by Stephan F. – TBP member
Ok, that’s it, I’ve had it. I’ve heard enough bantering by those geniuses who know everything about fiat money, investing, politics, globalism, and, lastly of course, the price of tea in China. I want no more talk from those idiot fakers who prognosticate by the seat of their pants, yet espouse complete omnipotence when it comes to all things economic. I can’t take it anymore. These guys have drowned me in a sea of repetition, boredom and disgust. They’ve become the very same talking heads they criticize, and create the very same results – confusion, frustration, chaos & havoc. If I hear one more pseudo-intellectual pontificating their never ending BS, I swear I’ll smash my computer. Finis! Done! Lights out! No Mas! If there ever was a subject that was so over-analyzed, yet completely misdiagnosed & misunderstood, it has to be the Fed Reserve, fiat money, and fractional reserve banking.
I’d like to try to decipher one of these issues but must first warn you: this is an opinion piece, so be forewarned and proceed at your own risk.
WHAT IS INFLATION?
“The value of money, like the value of goods, is not determined by merely mechanical or physical relationships, but primarily by psychological factors which may often be complicated.” – Henry Hazlitt
The essential question that has confounded so many for so long is this: What determines the purchasing power (value) of money, and, what causes inflation (or deflation for that matter)?
To find out we must clearly define the term “inflation”, since its meaning varies from person to person and often causes much confusion. Those with a modicum of economic knowledge tend to use the classic definition, “an increase in the supply of money”, aka monetary inflation. However, when using the term here I am referring to the more contemporary definition, which is a rise in the average level of all prices, and not just one price or some prices. You probably know this better as “price inflation.” The same holds true for “deflation”, a general reduction of prices.
So then, what does determine the purchasing power of money and what causes inflation? This question may seem highly complicated as evidenced by the thousands of uninformed dilettantes who opine on the subject. Actually it’s much simpler than you might think and it all depends on a grand total of three components.
