Have you ever wondered why when you think back in time you get impression that your money bought you more than it does now. Well, wonder not because it is not a mere impression but something that is happening for real. It is called inflation and it is an insidiously destructive force. It is capable of eating away at your wealth and in worst case scenario it can transform itself into something called hyperinflation which will wipe away the entire purchasing power of your money literally overnight. Hyperinflation has happened in the past and it is in fact happening right now in Zimbabwe (see this Wikipedia link).
So how does inflation occur? First off permit me to clear one thing first. Inflation is most often defined as a rise in the general level of prices of goods and services in an economy over a period of time. This definition is a bit misleading and superficial. A more accurate definition is that inflation is simply an increase in the total supply of money over a given period of time. The increase in the money supply is perpetrated by the world’s central banks (ie Federal Reserve, European Central Bank, etc.) They do this by basically PRINTING MONEY. One of the euphemisms for “printing money’ that central bankers use to befuddle and mislead you is “quantitative easing.” Quantitative easing is central banker lingo for “printing money like there is no tomorrow” As you can probably already tell quantitative easing is bad for you financial well-being. I personally think it is important to understand this concept of quantitative easing, and I found a video that I believe will help you in grasping this concept.
I hope you enjoy the video. If you’d like to read a more detailed article on quantitative easing checkout this post on my finance blog.
Cheers,
Alan