A Short Explanation on the Government Love of Inflation

1. The government is in debt. I mean, damn are they in the red.

2. They pay in fiat money, i.e. dollars.

 

This is all you need to know to see why we have rampant inflation. It’s not all there is, but it does lend to understanding why some things happen.

Lets say Uncle Sam owes you $100.  For the sake of simplicity we will say that the money is equal to 100 grams of gold. Unfortunately the government can’t quite pay you back. No Problem! More money can be printed! You get paid for services rendered and the government is no longer in debt to you.

However, that $100 dollars is now worth 86 grams of gold. With this system the government is paying less money. In essence it gets $100 dollars of X for $86 bucks. It gets worse (we are talking about the State after all) because all money is devalued. The $100 you had in the bank is also worth $86 now.You have been robbed of money that never left the bank. Well except for fractional reserve banking, but that is a whole different kettle of fish.

Wasn’t that a fun little lesson!

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