When I share something about BIG or EMS there is always a lot of hassle with Inflation. Yesterday someone replied that the BIG in Swiss would cause hyperinflation. I reacted to this = showing I didn’t understand it that well.
I went to search for some information about inflation as to ‘When does inflation occur’ and ‘When not’?
I came across this article: http://www.forbes.com/sites/johntharvey/2011/05/14/money-growth-does-not-cause-inflation/
My only understanding about inflation is what I have learned from high school: “When people press too much money it causes inflation”. Yet.. I couldn’t see how a BIG or EMS would actually cause inflation.
In this post I’d like your perspectives.
When reading the article I am left with the following pointers:
The BIG does not create inflation per sé. It would only create inflation when the money is ‘created’ (thus pressed) and if you actually get the money from let’s say profits from companies: There should be no inflation. As the amount of money that is exist is the same, though it can now be spend my more people.
The only way it can create inflation is when companies start charging more for their products. The problem of inflation then lies with the companies and the free market as in how much they may charge and is not a direct result of the BIG. It just exposes the power companies have.
To make this more practical. Let’s say: We give free rent housing now to everyone. This in itself is not causing inflation, though the people DO have more money to spent. The only way inflation then can occur is when these house-owners (to whom one pay the rent to) decide to Ask more money than they initially did. Thus this would require a maximum freedom of a price that can be asked to prevent abuse.
I see that this is a problem to the people who believe in a Free market which is just another word for: Free Financial Abuse or Free Range of Profit Margins.
Thus bottom line:
BIG does not create inflation on itself when it’s backed up by money that already exists.
Now where I find difficulty with is the point that if money is created by banks and how it exactly does create inflation. What I have read in the article and understood it correctly… inflation should only occur is the printed money is higher than the demand of money. Yet I cannot grasp the point of ‘Demand’. Like I know there is a demand for money, so how does 1+1 add up?
Another point I find difficulty with is that I’ve learned that money should always be backed-up by something. And I still have the understanding that it’s gold. Though I have ‘heard’ that if we add up all of the money that currently exists within this world, does not equal the amount of gold, thus ‘what is it back upped by?’.
If you say like: Well it’s not back upped by anything, and that’s why inflation actually occurred, then Why has this not been repaired or is it in repairable?
Is someone able to explain this to me and show me whether there are some ‘assumptions/misconceptions’ here?
And then if it’s true what I said in the first part, how can we common sensically show that the ‘free market’ then is the problem and should be adjusted in relation to the ‘inflation point’ and the solutions we really have for this?
I have listened to https://www.youtube.com/watch?v=JZo_NE2lD08 which gives a clear perspective on inflation too and how it occurs. However I still i am not clear on some of the complexity of our Current system.