How Inflation Works?

This article is all about What is Inflation & How it works in Layman’s language. I will not use any sophisticated financial terms here to describe inflation. I will not use any Wikipedia or Investopedia definitions to describe Inflation Here.

So What is Inflation in Layman’s language?

Well, Inflation means reducing the purchasing power of your money over the time weather because of the cost of goods and services in the economy go higher or because government prints and push more money in the monetary system which dilutes the purchasing power of the existing money.

Why Inflation takes place?

Well, the most common reason why inflation takes place is, Because Government prints more money. After 1971, Money did not remain derivative of gold any more. Modern money is not backed by Gold anymore. Modern money is a derivative of Debt. Whenever, you, government or businesses borrow money, the new money is being created in the economy and this new money dilutes the purchasing power of the existing money. Thus, the Modern money is known as Currency.

What happens if Inflation goes very high (Hyperinflation)? -

In the history few times, this type of scenarios happened where Economies of different countries suffered from Hyperinflation say for Example, Germen Economy in 1923 and Zimbabwe economy in Year 2008.

See the above photos of Zimbabwe Hyperinflation. When the hyperinflation sets in, The Notes of Lower denomination disappears and the government forced to print notes of higher denominations.

See in the above photos, You can buy 3 eggs for 100 Billion Zimbabwe dollars. This is the Example of Inflation going through roof (Hyperinflation).

What are the advantages of Hyperinflation?

Well, Hyperinflation is advantageous for intelligent investors and business owners who have taken a huge amount of debt to fuel the growth of their businesses. If hyperinflation sets in the economy, Businesses & Smart Investors will pay off all of their debt with the inflated currencies and get out of the debt easily.

Currently US Government is in huge debt and it has printed literally $ 1 Trillion in the economy. Thus, sooner or later hyperinflation will set in the US Economy and USA will fulfill all of its debt with the inflated currency.

Thus, This is How Inflation Works….!!!!!