Skip to main content

Does Printing Money Cause Inflation?






With countless industries unable to operate and millions unemployed, governments around the world are forced to step in. To weather the storm, trillions of dollars have been "printed" and infused into the economy. With all this stimulus going on, people are naturally concerned, what about inflation??

Money, like anything else, abides by the law of supply and demand. All else equal, the greater the money supply, the lower its value.

However, supply is only one factor. Money's value stems from what it can buy, "goods" are a big part of the equation too. The US dollar for example has value because of the US goods and services you can buy with it.

If the supply of goods become scarce or if demand rises beyond supply, the value of money decreases (you'll need more dollars) and vice versa. A Supreme t-shirt requires more dollars, a H&M t-shirt requires less.

Monetary stimulus has people concerned about hyperinflation. This occurs when the money supply greatly outruns production. Too much money chasing too few goods. 

Hyperinflation famously happened post-World War 1 after Germany printed too much money to service its debts. A loaf of bread in Berlin cost around 160 Marks in 1922 and a year later cost 200,000,000,000 Marks.

Keeping the money supply within a country's productive limit is key to preventing hyperinflation. You need to produce enough goods to justify the money supply. This is up to policy makers to monitor and maintain.

Inflation in theory is pretty simple, in practice it's complicated and unpredictable. So many moving pieces.

It can be nuance. Inflation doesn't happen in unison across the board. Improved technology can make smartphone production cheaper, reducing its price. While simultaneously a bad harvest can cause wheat prices to rise. Inflation can be happening in some areas, while deflation is happening in others.

So will all this stimulus cause inflation? Maybe. I have no idea, and I don't think anyone else really does either. It's something to keep an eye on but nothing anyone can predict.

















Comments

Popular posts from this blog

The Art of Giving Feedback

Constructive feedback is an awkward affair. You don't want hurt feelings, but recognize the importance of honesty. You've tried the classic "hoping things will get better on its own" and unfortunately it hasn't played out. When giving feedback, here are a few things that I try to keep it mind. Start with empathy. Step into their shoes and understand their story. If you don't know, ask. Be genuinely curious. Feedback is a dynamic affair. Shared communication with a shared goal towards progress. Take the emotion out of it. Focus on the situation, not the person. Focusing on the person adds unnecessary weight to an already emotionally-bloated event.  Be specific. Give clear examples. Vague feedback equals dismissed feedback.  Doing above won't de-awkward things fully, but it will dampen it and increase the chance of better outcomes. 

Bias For Clarity

Bias for action. Gets things done. Go-getter. Traits companies big and small look for. And for good reason, you're being hired to do things! However, action is a secondary step that often overshadows the primary step, direction.   Clear direction is the foundation that enables our actions to takeoff. Without it, we're stuck in the mud.  Striving for clarity is an underrated skill. Having the courage to ask ( seemingly ) obvious questions, and to check in, making sure we're all on the same page. "O bvious " questions are a low risk, high reward way to add value. At worst, you'll add confidence to our actions. At best, you discover a misalignment that saves us from a dead-end.  The more people, the more clear we need to be. The bigger the initiative, the bigger the risk of reaching the finish line, only to realize expectations were off.  Success is always uncertain. But we can be certain about what we want and what everyone's job is. Things that can be clea...

Negative Feedback, Positive Lessons

In the battle against plastic bags, a five-cent tax was shown to be much more successful at deterring usage than a five-cent credit for bringing your own bags. Carrots satisfy but sticks sting, and they sting hard. So we default to the less painful choice of avoiding loss. Loss aversion impacts the way we process information. A 2019 study  invited participants to learn through a series of multiple choice questions. Each question only had two options to choose from. Whether guessing correctly or not, they would still learn the right answer.  Despite the identical learning opportunity, participants were much more successful at recalling the answers they guessed correctly than those they got wrong.  "You're right!" feels good. We savour the moment, analyzing every detail.  "You're wrong!" stings. We want to quickly forget, dismiss, and move on.  When we succumb to loss aversion, we miss opportunities to learn. Failure is part of the process. We'll experie...