I thought my previous post, Inflation Explained In Less Than 50 Words, deserved a few more words, so here they are:
As I said, inflation is a hidden tax which reflects not a raise in prices (value) of goods and services, but a fall in purchasing power (value) of a currency.
For instance, if you have a 2% yearly inflation rate, it means that the dollar you had at the beginning of the year will have a purchasing power of 98 cents after one year; multiply that over 5 years (if the inflation rate remains stable, which it never does), and your dollar will have lost 10% of its purchasing power over 5 years. Your original dollar will now be worth 90 cents – and this does not take into account the compounding effect. Prices will reflect this by going up from 1 dollar to 1.10$ over these 5 years (actually a little more, once again because of the compounding effect).
This hidden tax called inflation is built into our financial system, and it means that money in the bank will always loose value over time because interest rates offered on deposits by the banks will rarely offset the effects of inflation (they actually are meant not do to so). This is how people who have some savings have been pushed into riskier and riskier “investments” to offset the perverse effect of inflation.
However, describing this effect of the hidden tax called inflation still does not address the cause of inflation, which is the expansion of the money supply. The more we have of something, anything, the less valuable it becomes (law of supply and demand). So, the more dollars you have, less valuable each one becomes. In this respect, money is actually treated as a commodity, like coffee, grains, etc. – and this is how the banks and financial markets see it.
However, money does not grow on trees (see Where Does Money Come From? No Dilbert, Not From God, Nor From Trees…); it is created (issued is the official word) by a central bank, such as the Federal Reserve of the United State (the “Fed”) or the (central) Bank of Canada. I will not get into the details of this process here (you should view Mike Maloney’s Hidden Secrets of Money for a better understanding, especially Episode 4, The Biggest Scam In The History Of Mankind, which I am posting below).
Let’s just say that whenever a central bank expands the money supply (through so-called “Quantitative Easing” operations, for instance), it actually devalues the value of a currency – which is reflected in rising prices, the hidden tax called inflation, which like I said is a loss of purchasing power. In effect, whenever a central bank issues new money, it is actually robbing us of ours (Banking Explained In Less Than 50 Words…).
“You are about to learn one of the biggest secrets in the history of the world… it’s a secret that has huge effects for everyone who lives on this planet. Most people can feel deep down that something isn’t quite right with the world economy, but few know what it is. Gone are the days where a family can survive on just one paycheck… every day it seems that things are more and more out of control, yet only one in a million understand why.
You are about to discover the system that is ultimately responsible for most of the inequality in our world today. The powers that be DO NOT want you to know about this, as this system is what has kept them at the top of the financial food-chain for the last 100 years…
Learning this will change your life, because it will change the choices that you make. If enough people learn it, it will change the world…because it will change the system . For this is the biggest Hidden Secret Of Money. Never in human history have so many been plundered by so few, and it’s all accomplished through this… The Biggest Scam In The History Of Mankind.”