My mom likes to reminisce about mayonnaise being a nickel. She also talked about this when listening to the oldie’s station when the it played Elvis instead of the Red Hot Chile Peppers. Now a jar of mayonnaise I have been replaced by plastic containers that cost $3.00 during the 4th of July sales.
Why Does This Happen?
The simple answer is Inflation, or a rise in prices. I would say a gradually rise in prices, but that’s not always the case. For example, Venezuela is said to have 1,000,000 percent annual inflation. Other currencies have experienced hyperinflation as well such as the German money before world War 2 and I remember hearing stories of Zimbabweans people burin paper money to keep warm. This begs the question? Why do prices rise and why do some countries have prices that rise so dramatically? The answer is not so simple because it involves macroeconomics and macro economics is political. There are many different schools of thought on macroeconomics just Ike there are many political parties, but most countries follow Keynesian economics. This is the center left Democrats and center right Republicans of Macroeconomics. I’m not an economist, but I enjoy about the subject. We could dive deeper down into the subject and talk about different schools, but I’m just going to focus on two for simplicity.
My high school economics teacher used to be a part owner of a bank. At the time, Red Hot Chile Peppers were played on the Alternative rock station in stead of the oldies station and if you and a few of your friends could come up with three million dollars, you could start a bank, He and seven of his friends owned such a bank until it went under. It was one of those too small to succeed banks. He then explained how Fractional Reserve Banking worked. I explain it a little differently than Mr. Silva, but I assure you I learned this from him When I was a young Red Hot Chile Peppers listening whippersnapper.
This is Bob. Bob has a dollar, but in this world, dollars are not made of cotton and pictures of dead presidents embossed with spider webs. In this example a dollar is represented by a cat. New dollars will be referred to as kittens.
Just so we are clear, Bob has one cat. He wants to put that the bank, the bank of Bob or B. O. B. To keep things simple, though, we will her for the refer to it as just “the bank”
So now the bank has Bob’s cat. We’ll call this a savings account to keep things simple, of course, there are different types of accounts. The bank must keep Bob’s cat in the bank, so he is able to withdraw it. it will pay Bob 0.01 cats every year he has it in the bank. (a whisker) For keeping this cat safe, the bank gets more than a whisker. It gets to extract that cats extra nine lives. I assure you that Bob’s cat is safe in the bank. They just took that vacuum machine they have in the drive-through window and sucked out all of its nine lives. It then takes these nine cats costs and makes 9 kittens or new money. Now they can’t just take these kittens and make it rain pussy cats on the general public. They throw these kittens to people who use credit cards, buy homes, or start new businesses.
Now Alice takes a loan out for 3 of these credit kitties. She builds a construction business. She does well and pays the bank back 4 cats. (The bank charges interest. The bank also loans 3 Cats to Carl an 3 cats to Dick. Carl paid back five cats, but Dick is a deadbeat doesn’t pay back his loan. The bank reports dick to the kitty credit bureau and they give him a kibble score off 300, raise Carl’s kibble score to 650 and keep Alice’s kibble score at 850. Now the other banks now Alice is low risk, Carl is moderate risk, and Dick disputes his credit score because he said the kitty credit bureau was hacked and he didn’t actually take out the loan. It was a mess and I don’t know if he’s telling the truth, but he can’t get credit anymore. Regardless of what happened to Dick, those kitty’s that were lent to him are dead. (Don’t worry, no actual cats were harmed in the writing of this blog.)
Here’s where everybody stands. Alice has a business, Cal has his car, these new cats and Dick is bankrupt. Bob still has his dollar and a whisker. The bank now has 9 cats in its coffers This is the new monetary supply. These extra cats are an increase in the money supply. In reality it is not cats, but dollars. This is how fractional reserve banking works. There are a lot more bankruptcies I’m sure, but this is ow money is printed by the banks these days.
But Isn’t the U. S. Dollar Backed By Gold?
You might be asking, wait…. Don’t they need gold in the bank to back up all of those dollars? I saw an episode of Looney tunes where Bugs Bunny defended all of the gold in Fort Knox against Yosemite Sam;
… NOT ANYMORE. The United States first used a fiat (meaning by decree, not to be confused with the small Italian car) currency in the early days called the Continental. It was a paper money that wasn’t anything backed by anything, but JL Collins said the country went into hyperinflation in 1776, in his book The Simple Path to Wealth. paper money and it didn’t work out so well so they Said money needed to be gold and silver in the constitution.
“Section 10. No State shall enter into any Treaty, Alliance, or Confederation; grant Letters of Marque and Reprisal; coin Money; emit Bills of Credit; make any Thing but gold and silver Coin a Tender in Payment of Debts; pass any Bill of Attainder, ex post facto Law, or Law impairing the Obligation of Contracts, or grant any Title of Nobility.”
In 1776, Adam Smith wrote the Wealth of Nations. https://www.amazon.com/Wealth-Nations-Adam-Smith-ebook/dp/B000FC1CVE The problem was that gold would eventually be debased. The miners of the gold could not to be trusted to keep the gold pure, so they melted it down and added other metals to it.
“Princes and sovereign states have frequently fancied that they had a temporary interest to diminish the quantity of pure metal contained in their coins; but they seldom have fancied that they had any to augment it. The quantity of metal contained in the coins, I believe of all nations, has accordingly been almost continually diminishing, and hardly ever augmenting. Such variations, therefore, tend almost always to diminish the value of a money rent.”
In 1971 we had the Nixon Shock that took the US completely off the gold standard. According to the Bitcoin Standard, French President Charles De Gaulle send French Military carrier to get their gold back. Germany tried to get it’s gold back and on August 15, 1971, Nixon said we were no longer using gold for money, at least temporarily.
We never went back.
The point is the dollar was no longer backed by gold and all of the currencies of the world were traded amongst each other n a free-floating market. This is called the Forex market which stands for freeing exchange. It’s the biggest market in the world All of these currencies are running on this fractional reserve banking system. They are traded just like any other commodity and based on supply and demand.
What The Fuck Does This Have to Do With Inflation?
Well… everything. The monetary supply is what control the inflation. Central banks control the interest rates. @hen they make the interest rates low, credit is cheap and it entices people to use more credit. When inflation starts to get higher than the Federal Reserve or European Union would like, they raise the interest rates. When the interest rates are high, people are less likely to take on credit and the money supply shrinks. Inflation, therefore, is just supply and demand for money and the central banks control the strings to the system. Their goal is to keep aggregate spending at a level that keeps the money flowing in the economy while maintaining a 2% inflation rate. Think of them as pulling puppet strings on all those cats.
In conclusion, this is why minimalism is such a radical idea. We are all encouraged to spend-spend-spend because we have been taught that our money will lose value. If we put it in the bank, we will get a whisker worth of interest. Why would you save if you expect to lose your spending power? Sure, you can do the stock market, but most people don’t have time to figure out how to invest in between binge watching Netflix and eating out. We also get bombarded with the latest gadgets and gizmos hacking our emotions to take our money. We are like ants taken over by the cordyceps mushroom, doing the bidding of the corporations. Ask your doctor about drugs and hurry to the Buick dealership —YOLO.
I say take the red pill. When your money goes up in value something strange happens to your behavior. Suddenly, Buick’s don’t look so Shiny and bicycles look more appealing. Beans taste good and they are quicker to make in an Insta-pot than making a run for the border. You have seen the light and you turn it off when you leave the room. You start doing laundry twice a month and even hag dry your clothes. You shine your od shoes instead of buying new ones. Sew buttons on shirts. You buy used and discover you don’t need a bigger TV because you have to catch up on all the books you got at the library.