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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.

















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