Hello dear friends of LeoFinance, I hope you are all very well, today I want to talk to you about a topic that lately we see a lot in the news, that topic is inflation, a phenomenon that in recent months has greatly impacted the United States, but not only them, in many other countries of the world is also rampant, I mean inflation, and I will explain why I think that inflation is the symptom of a disease, that of bad government.
So let's start with the basics, what is inflation?
In a simplified way, inflation is the loss of value of a monetary cone, this loss of value becomes evident when you buy something with that currency, you notice that with the same amount you used to buy everything you needed, now you are short.
For a more practical example, let's suppose you have 10 dollars, and with that you buy your lunch, if the annual inflation rate is only 1%, at the end of the year the lunch you bought with 10 dollars will now cost you 10.1 dollars... only 1 cent, but if the annual inflation rate is 16% then at the end of the year when you want to have lunch the bill will be 11.6 dollars.
This has a lot of consequences, one of them, the most noticeable for us the working class, is that while our wages remain the same, the prices of all the goods and services we need become virtually more expensive for us, while we continue to earn the same, this effectively diminishes our quality of life.
Now, I said virtually more expensive, because in reality the goods and services still have the same value internationally, or at least, regionally, only now we need more of our currency to buy them because that currency is worth less.
This part is best explained this way, we have to assume that currencies are yardsticks, and in many countries they are measured with different yardsticks, because their governments and populations have decided so, the euro is one yardstick, and the dollar another yardstick, suppose that today you could buy 1 basket of eggs for 3 dollars, or for 3 euros, {I know this is not the case} if tomorrow the dollar has an inflation rate of 33%, you will need 4 dollars to buy the same basket of eggs, but you will still need the same 3 euros because it had no or minimal inflation, this does not mean that the euro is worth more than the dollar, 3 euros will still buy you a basket of eggs and not more than that. But now the dollar is worth less. The dollar has become shorter, the euro remains the same.
Now, why does inflation occur?
While phenomena such as the increase in the price of a specific item can have very different consequences, the origin of inflation is almost always the same, the excessive increase in the circulation of a monetary cone, when you print more bills of the same type, without any increase in your wealth to back it up, you basically dilute the value of the bills in circulation, just as when increasing the supply of a product beyond the demand decreases its price, without injecting my bills to an economy that does not have the required value to justify that injection, you dilute the value of the monetary cone, this artificial injection of liquidity brings us to the central point of this article.
The action of governments.
Generally the injection of liquidity into the economy is given by governments and their central banks, either to pay their public debt, to finance their social programs, to make effective a lowering of interest rates, or more ominously... to increase inflation intentionally.
In all these cases, many governments justify the increase in the inflation rate by saying that it is the good kind of inflation to help the economy grow, which they usually justify with the following arguments.
-Inflation stimulates economic exchange.
Under the logic that, faced with the threat of inflation, people will spend all their money as soon as they get their hands on it, and avoid saving, people are led to believe that inflation can end up being a good thing for the economy. The truth is that very few people save by keeping their money in a safe, most of their savings are always in banks, where the money is constantly used in financial operations until the day of their retirement. Inflation discourages saving because it destroys the quality of life, bringing people to the point of inability to save since what they earn is less and less to cover their basic needs. And that is worse for the economy than people holding on to their wealth.
- inflation will promote employment.
Those who defend forms of inflation as something good usually brandish as a slogan the calculation that by increasing the cash flow will increase the ability of companies to hire more workers, the detail is that while the nominal value of money increases, its value on a macroeconomic scale does not, there are more numbers, but now a company must spend more of those numbers to buy imported raw materials for example, If we add to this situations such as the social program of the stimulus packages in the United States, or the basic income, we create a situation where working in a company is simply not worth it. So inflation destroys jobs and industry.
These are just two examples. Meanwhile the government tries to make it a complicated issue so that people don't ask too many questions, so they explain it like this.
When in reality it is not very difficult to understand....
Now why do I say inflation is theft? well... because if we accept inorganic capital injections by governments as a necessary measure to pay the public, we can assume that basically the government is printing money out of thin air to pay for its excessive spending, at the expense of the savings and quality of life of the population, that is negligence, the companies that accept that payment, if they are multinationals do not face major consequences as they quickly buy foreign currency and move elsewhere, but if they are national, these companies receive a payment that quickly loses its value. What makes the payment with inflationary money basically a Fraud, and while the cost of the products of the basic basket increases, the salaries many times remain in a fixed amount, the taxes are charged in Percentages, it does not matter if you spend 10 or 15 dollars in a lunch, if the taxes are 30%, the government will receive either 3 or 4.5 dollars depending on the case, they will never lose or stop earning, this is simply appropriating the wealth of the people with or without the consent of the people since the people do not vote to decide the monetary policy day by day, that is.... Theft.
If we add to this the use of liquidity injections to finance social programs that help keep the government in power in circumstances where without those programs there would be a social outbreak, we can say that inflation is a symptom of corruption.
And what do cryptocurrencies have to do with all this?
That part is simple to explain, when you invest your money in cryptocurrencies you basically exchange the monetary cone of your country for such cryptocurrencies, which effectively takes you out of the economic game that your country's government is planning, since it will be much more difficult for them to track your assets to begin with, inflation, intentional or not, will not affect you since the value of your cryptocurrencies will not be governed by that of the nation where you live, such action would give you economic freedom to buy any other currency whenever you please, and you would avoid the so-called financial corralitos.
If you invest in successful projects, and you see your assets multiplied taking as a reference for example the dollar, you would be doing the opposite of what the government wants you to do, since you increase your wealth, this would give you economic freedom in a nation where perhaps this is attacked by governments, because yes, the attack on economic freedom is a way to reduce civil liberties, and I know that because I have lived it. The one who has to work all day so that his family can barely eat, has no time to rebel or protest, no one can go out to march malnourished.
That is why, especially authoritarian governments hate cryptocurrencies, because the economic freedom they are giving, means freedom to buy the things they forbid, means freedom to evade their corrupt systems, means freedom not to depend on their institutions. Or to protect yourself from the inflation they generate to sustain their failed economies.
That is why organizations like the Human Rights Foundation and other NGOs are moving their financial instruments to Cryptocurrencies, to avoid malicious government intervention. https://hrf.org/devfund
And due to the latest inflationary crises around the globe, product of the excessive debt in nations like the United States https://www.businessinsider.com/inflation-cpi-november-prices-index-economic-recovery-supply-chain-crisis-2021-12?IR=T&r=US&utm_medium=ingest&utm_source=markets, or the social programs in the European Union, many people believe that cryptocurrencies will surpass the dollar as the world's reference currency in the near future...
Thanks for reading me, this article is a bit of a departure from my recent posts, and is more of an opinion piece than an informative one. Sources
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