Inflation is the rate at which prices of goods and services rise, and therefore, the purchasing power of the currency is decreasing. I will argue that inflation has done more harm than good and is by design.
People with assets like gold, property or stocks benefit from inflation because that increases the value of their assets. Those who hold cash, which is the vast majority, dislike inflation because their cost of living increases and their cash is able to purchase less.
From 1800 to 1900, the world experienced deflation and an increased standard of living. According to an inflation calculator, what cost $1,000 in 1800 would cost $489.40 in 1900; or $2,043.30 in 1800 would have the same purchasing power of $1,000 in 1900.
This is a deflation of 51% and an increase in purchasing power of 104%. It was a time of prosperity. It is a myth that an economy must experience inflation to have growth and prosperity.
This system of an economy based on debt was started with the creation of central banks. It became global when the US Central Bank, called the Federal Reserve, was created in 1913.
Central banks affect the money supply by buying or selling government securities. To increase the amount of money in circulation, central banks purchase securities from commercial banks and institutions. This frees up bank assets, and they have more money to lend.
The opposite is done to take money out of the system; as no money is pegged to a gold standard, central banks can increase the amount of money in circulation as required. This, in my opinion, is the main cause of inflation. Banks only have to have a fraction of what they lend, usually around 1/10.
The amount of money in the system is always increasing through loans from commercial banks. A bank can lend up to 10 times what it has, using the central bank system. The borrower and his asset are the collateral. The central bank prints the money for the commercial banks to lend; hence, money is created primarily by debt.
Borrowing increases the money supply and therefore increases inflation. Remember, the borrower must pay back with interest, since the money he borrows will be worth less by the time he pays it back, and the lender has to make a profit.
This system hurts the poor, since they have no tangible assets that will appreciate. The rich benefit from this system because they have assets and are therefore getting richer. Consequently, the rich get richer and the poor get poorer.
The present global monetary system must change, or the gap between the rich and poor will increase to a point that it can cause social upheaval. Belize uses the central banking system. Only 3 countries don’t use it — Cuba, North Korea and Iran. This system was designed by the wealthy to benefit them. What can a regular person do? Gain knowledge and use it.
Brian E. Plummer