Why is inflation rising so fast?

The key is to understand what inflation is. The definition of inflation used by economists is “too much money after too few goods”. If you break this, you will notice two parts. There is the part of the amount of money and the part of the goods. The word “goods” means anything you buy with money, that is, things, services, experts, and so on. Note that there is a relationship between money and goods. This relationship is driven by supply and demand, but one easy way to think about this is that there must be a balance between the two in order for the value of goods to be stable.

How can too much money come? The question that comes from this is: how is money created? Today’s money is called fiat money. Fiat means “by decree” or “by law”. When you see words that are used “legally”; this can be interpreted as “forceful”. As the law is enforced by the police or the military, this literally means that they will cause you harm if you do not comply with the law. Think mafia but legal. This means that we have no choice as to the money we are using if we want to comply with the law. By definition, other types of money cannot be used for transactions or the purchase of goods. Try using gold or silver coins or cryptocurrencies to pay taxes in Canada. Only Canadian dollars can be used. Another key term to remember is that money today is a unit of debt. When you hear the word debt, it means that you owe someone the money that was created, like in a loan. The interest is linked to this loan, similar to all other types of debt. Since the interest is in the currency of a country, the interest is taken by the country, that is, the taxpayers of the country. This includes the income tax system. Have you noticed how much extra money has been “created” around the world in the last 2 years? How much money can be created? There isn’t, and that’s why too much money can be generated quite easily and unsupervised.

And about the goods? Because of the government’s response to the pandemic, people are unable to produce the goods they used to produce because they are forced to stay at home or close their businesses. Workers are also paid to stay at home instead of producing. You can add a reduction in the demand for people who are unable to make purchases and the number of goods produced will continue to decrease. Lately, there have been a shortage of parts and delivery delays. As a result of the current just-in-time logistics headache, any small disruption will create a wave effect that will exponentially increase the time frame for producing goods. The more complex the product and the more dependent it is on logistics, the longer the delays and the longer the interruptions.

What you are seeing now is that forces come together at the same time: too much money and too little goods. Will this last? Considering that governments will create more debt to pay off old debt, this creates an exponential effect that will come close to an unlimited amount of money being generated. This also means that the current fiat currency will be invalid and can be canceled. Inflation will last until the form of money becomes something scarce and limited and the goods produced are stabilized. Then the two parts of the equation would be balanced again. To deal with the forces of inflation, this means creating less money or debt, along with producing more goods.