“If the world’s using bitcoin, governments won’t be able to fund wars through inflation like they do today.” –Roger Ver.
Inflation a market phenomena every economic system has. Inflation causes a general increase in prices and a fall in purchasing value of money. Over our lifetime we will see if we haven’t yet inflationary and deflationary periods in our local and national economy. Price fluctuations are natural within the fundamental principles of economics however; these principles can be artificially manipulated to suppress or increase prices as the powers that be see fit. Artificial market manipulation can have very negative effects often leading to hyperinflation, mass deflation, and collapse of an economy in addition to other outcomes.
Inflation generally has the biggest negative effect on the bottom portion of the economy, crushing spending power, and shrinking the demand for low skill laborers. Opportunity cost abounds in a high inflationary environment leading to reduced savings and investment in the real economy. These are some of the risks central banks and governments take when attempting to control the critical role of money in an economy. Examples of this can be found particularly in economies where the government or central bank holds too much power over money and the economy such as in Venezuela or even the United States.
Inflation can be good in small doses leading to decreased unemployment, and economic growth. Moderate inflation can lead to increased investment, and consumer spending as people can see value in price consistency. Inflation is often viewed as better than deflation because in times of moderate inflation you do not have recessions which is a symptom of a deflationary period. Central banks and governments want to ensure that inflation stays within this moderate sweet spot. It is important to keep consumer confidence levels and investment sentiment high, but without the market really having control can it work?
Inflation is an interesting topic. It is always controversial and exciting to watch play out in the real world. In my opinion inflation should always placate to actual market conditions and should not be impacted artificially in any way. I say this because if you research the examples I gave above you will see that market manipulation never works. The only way forward is through decentralized economic practices where WE get to decide what has value and what does not; this is how inflation happens naturally. Modern governments have spent their way into a hole that only a reset button can fix, thankfully some of us are beginning to hit the button. Please let me know your thoughts, and shoot us an email, we are looking for contributors!
Written by Caleb Hogan from ofthefreemarket.com on April 22, 2021
