Tuesday, January 27, 2009

Monetary Inflation

What is monetary inflation? It is the "inflating" of the money supply through printing new money. So what is happening right now in our country? Well, companies are hurting and laying off workers, cutting down stock, and dropping prices shockingly low (80% off regular prices!) to try and get what they have out of their doors. And what is the government doing? Well, they do not want these companies to lose money, so they are printing money and pumping it into the country so there is more money to go around and save these businesses. This is good, isn't it? Nope. With businesses dropping production and yet tons more money being printed we are going to end up with too much money chasing too few goods. The basic laws of supply and demand come into play here and prices start going up. When waaaaay too much money is printed and the prices go waaaaaay up it is called hyper-inflation. This is what we saw in Germany after World War I where their money became so devalued that it became totally worthless. So, you think, "Our country would not be that dumb! They wouldn't possibly do something that would lead to a situation like that!" But unfortunately it looks like they actually are that dumb, because look at this graph of the amount of money that has been printed recently:

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