Phil for Humanity Phil for Humanity
A Guide for the Survival of Humankind and Helping the World, Society, and Yourself.

Inflation is a Tax

It bothers me a lot that most people still do not understand that inflation is a tax.

Basically, governments are responsible for controlling the amount of money that is in circulation. Governments often add more money into circulation in an attempt to revitalize their economy; however, this strategy has other effects too. First, the national bank(s) will lower their interest rates to get smaller banks to borrow more money. As a result, these smaller banks will also lower their interest rates to get companies and individuals to borrow more money too. Furthermore, these new loans will increase spending thus creating more jobs and even possibly creating more new companies. In theory, this chain reaction of events helps stimulate economies.

Unfortunately with the increase of money in circulation and increase in spending, the cost to purchase goods increases too. Essentially, the value of money actually decreases, or it now costs more to purchase something than before. This is commonly referred to as inflation.

Eventually, even saving money in traditional saving accounts or certificate of deposits will yield an interest rate lower than inflation, thus saving and investing money becomes much more difficult than before too.

As a result, inflation is directly caused by governments, and inflation is a tax to stimulate the economy.

by Phil for Humanity
on 09/01/2008

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