What does inflation mean!


This week on Facebook: I am still being asked, “Who is it that this debt is owed to. The examples of  public debt that I referred to last Sunday appear’s to be of little concern to an electorate who assume that economic growth can continue unabated. The electorate’s assumption appears to be that the distribution of this perceived economic growth will be used to support the State’s spending on a social welfare programme. It ignores the history of their public administration’s attitude to debt and particularly to austerity. It was Germany that adopted the earliest modern social welfare programme under the aegis of Otto von Bismarck in 1889 (3).

In the Referenced Articles Books & Definitions: (listed as a footnote) I have included the reprise of three previous posts considered to be most appropriate to the money and the debt that inflation brings.

The first (posted in 2016)¹ is the shortest and a video of Prime Minister Callaghan shows that inflation abounded in 1976. Whether or not the notion of inflation was rejected by an electorate voting for Margaret Thatcher in 1979 is another story.

The second (posted in 2017)² is quite long in that it contains 5 articles on cryptocurrency that indicate it may be an ‘bubble‘. However, there is a general realisation that fiat money is an inflated product by the State and that some people seek to hedge against inflation by supporting cryptocurrency.

The third (posted in 2018)³ like the second is quite long and points to a Dark Age beginning not with the loss of information but the loss of knowledge. We now live in an age where social media provides a plethora of information but, globally, there is a dearth of knowledge — especially about the inflation that fiat money introduced into a State’s economy.


1. Inflation explained: The Bank of England uses inflation to set interest rates. If the Bank’s Monetary Policy Committee thinks CPI inflation will be above 2% in the next two years or so, it may increase interest rates to try to subdue it. Conversely if it thinks inflation is likely to be below 2%, it may cut interest rates. That’s why inflation is a crucial factor in determining the rates banks charge for mortgages and the rates they offer on savings accounts. It also has a direct impact on some people’s incomes.

2. Inflation, How It’s Measured and Managed: As prices rise, your money buys less. That’s how it reduces your standard of living over time. That’s why President Reagan said, “Inflation is as violent as a mugger, as frightening as an armed robber, and as deadly as a hit man.” Here’s more on how inflation impacts your life.

3. Sally Bowles in ‘Cabaret’ and read last Sunday’s post, particularly WEIMAR: The Truth About History’s Most Infamous Hyperinflation Horror Story. What separates hyperinflation from an economic bubble is that everyone is affected. While current inflation brings about austerity, the hyper-inflationary effects of it remain hidden.

4. Inflation – what the saver needs to know: To see it happening, think about what you could buy with £1 over the past few decades. £1 can buy you much less now than it could in 1970 – and in another ten years it will buy even less. This is due to inflation. This is known as the “purchasing power” of money.

5. Inflation risk explained: Unless your money is in an Isa, or you are a non-taxpayer, you could pay tax on your savings, which means you need to earn an even higher interest rate to keep pace with inflation after tax has been deducted.  If, for example, inflation is at 2% and you pay basic-rate tax of 20% on your interest, your money would need to be in an account paying 2.5% for the real value of your money to remain the same, and higher than 2.5% for it to go up. What this tells us is that keeping all of your savings in cash is not actually the ‘risk-free’ solution it’s sometimes assumed to be. If the returns you get on your money are unable to at least match inflation, then your money will effectively be losing value each year.


Referenced Articles Books & Definitions:

  • A bold text subscript above and preceding a title below (¹·²·³), refers to a book, pdf, podcast, video, slide show and a download url that are usually free.
  • Brackets containing a number e.g. (1) reference a particular included article numbered 1-5.
  • A link (url), which usually includes the title, are to an included source.
  • The intended context of words, idioms, phrases, have their links in italics.
  • A long read url* (when used below) is followed by a superscript asterisk.
  • Occasionally Open University (OU) free courses are cited.
  • JSTOR lets you set up a free account allowing you to have 6 (interchangeable) books stored that you can read online.

¹The pound in your pocket. (url/reprise 2016):  We all have a notional idea of what money is, ideas that may not extend beyond its existence as the pound in our pocket. We certainly understand the purchasing power of any monies we may have. It would seem that any notion of money only becomes complicated when we talk to economists; who are clearly divided in their views of what money is and what form it should take. An economist would want to us to be more precise about our idea of what money is.

²Cryptocurrency bubbles and money (url*/reprise 2017): If not seduced by the promises of a present day John Law continually emulate a great fiat money debasement. Like the Mississippi Bubble and all other economic bubbles, at some point the cryptocurrency bubble will also burst. Nevertheless, a public administration’s inflationary fiscal policy that fiat money allows, ensures that cryptocurrency (like gold) remains a phoenix to the speculators who influence sovereign credit rating.

³The Value of Money (url*/reprise 2018): In ‘The Coming Dark Ages?’ I criticised all the articles for failing to point out that (in my view) the prevalence of an economic global hegemony by Western Philosophy relied on a reserve currency in a fiat money world. Money at the centre of globalisation, whether it is trade or war that is the dominant driving force for global economic growth. I was especially critical of the article America enters the dark ages concluding that in my opinion money, war and a rising nationalism, are the most likely harbingers in any coming of a new dark age.

 

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The Land Is Ours

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The Bulletin

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The Real Economy

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