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J@rallysite.com
JustinDec 20, 2020 12:42 pm GMT
There's a lot you need to know to have a deep understanding of inflation. If you want to dig deeper you'll want to start with understanding the Federal Reserve.  This piece has some stron basics; https://explore.rallysite.com/blueyouth/blueyouth-live-group/summary-political-basics/GKLZboN8XFJ

For this piece ( Inflation - 10 Things You 100 Need To Know! ) I'll skip the deep learning so we can focus on some of the crazy big bad effects that inflation can create.  

Traditionally, like in an Economics 101 class inflation is describe as; imagine a village with a population of 100 people, but with no outside contact or trade.   Each villager starts with $10,000.  Now the villagers use the the money just like we do to buy things, therefore the value of the money is based on what you can buy and for how much.  Now let's say 10 years of past and  we give each villager an additional $1M, or 10X the amount of currency in the system.  Now the amount of currency needed for goods, services, and real estate will go up, and probably rise by 10X.  Conversely what your currency will buy per dollar will of down, by 10X.  Simple and easy to understand.

The problem is that real world inflation is complex and un-even.  Yes the same principals apply, but the results are tricky to see. As I'm writing this piece we have a pretty good example to draw on.  A few months back the US government printed and then injected $2.5T into the economy to relieve problems caused by Covid. So we just created a bunch of currency, but added it to what?  As of now there are are only $2.02T US paper dollars in circulation. The bulk of all currency is digital IOUs, and the US has about $20T in digital funny money circulating.  Basically the US increased it's currency circulation by about 10%.

With a 10% increase in currency you might expect a 10% rise in the price of various good, services, and real estate.  What happened (so far) is very un-even. Most of the $2.5T was injected into peoples pockets who lost their jobs inside 2020.  Most of those people work in restaurants, hair salons, and other lower wage service businesses.  Additionally, the Gov did not allow landlords to evict tenants from living situations in 2020, pushing part of the welfare burden directly onto landlords.  In total many lower wage earners were paid to specifically NOT work.  These lower wage people tend to spend most of the money they earn (or are given) on basics like food, rent, car payments, clothings, and other consumables...

Now imagine you're a producer of food sold to grocery stores, or a grocery store owner.  If there were no stimulus / welfare package as mentioned above then you would have less people spending less money on groceries, but you would also have access to people who were willing to work for reduced wages. Instead we pumped in welfare stim and so people kept spending and no reduced wage workforce materialized.  In short, on the low end of the consumer scale the stimulus package propped things up that would have otherwise fallen, which is a form of inflation. On it's face this seems fair and right, and impacts 20M plus people who need help.

Now image that in the beginning of 2020 you had saved $1M in cash, with the intent of buying a vacation property at the end of 2020.  But now what could have been purchased for $1M in the begining of 2020 for $1M, is being sold for $2M at the end of 2020.  On it's face this seems like a small problem for a few rich people who happened to sit on cash for too long.

The problem with these two situations is not about what happened just now.  If you take the "On it's face opinions" out the mechanics of what actually caused this and what might happen next get very sketchy very quickly.



Unemployment is a tricky number at detail.  Here's a graph that helps provide enough perspective. https://www.statista.com/statistics/193280/seasonally-adjusted-monthly-number-of-unemployed-persons-in-the-usa/



>>

This Vox piece describes what I would think of as the paradox of WANTS vs NEEDS.  Some things have minimum Need value, like each person needs air, water, food, shelter, etc... However, what truly drives a modern western economy is Wants like, car, neighborhood, school district, food quality, and so on...

https://www.vox.com/the-goods/22166381/hollow-middle-class-american-dream
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