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

Today's Special: Humble Pie

You champion a project, fight for an idea, and then...reality sets in. That churning in your stomach isn't butterflies, it's the realization you've missed the mark.  Pride will puff up your chest, and kick in the "defend at all costs" instinct. But arguing with the umpire never changed a call. Admitting you're wrong isn't a sign of weakness. It can strengthen your professional standing. In a world obsessed with the illusion of infallibility, the courage to adjust course is a breath of fresh air. It shows you're confident enough to be wrong, and adaptable enough to learn from it. Do your research, think critically, and stand behind your decisions. But when the data whispers (or screams) otherwise, don't be afraid to swallow that slice of humble pie. Be the first to acknowledge. Don't wait for someone to point out your mistake. Be open, take responsibility, and most importantly, focus on what you're going to do to address it. Don't dwell ...

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...

Starting Really Really Small

On your desk is one of the most intimidating sights known to man. A blank page. The prospect of filling it up with anything resembling decent seems insurmountable. Staring at the long road ahead fills you with anxiety and dread.  The first step is the most difficult. So we procrastinate. We " research ", we " prep ", we " plan ". We do everything except tackling the problem. We avoid the pain for as long as we can.  To make a blank page less intimidating. Tear it in half. There, half as scary, twice as easy. Still too much? Do it again. And again. Keep doing it until the task is so small that it's too easy not to do.  Getting starting is the hardest part. So make the hardest part as easy as possible. This doesn't guarantee amazing results, but it gets you in the game. You can't win if you don't play.