How To Inflate A Balloon (warning - may cause widespread poverty)

Governments around the World have been trying to cause inflation for years and failed. The Japanese keep trying and trying, but they just can't do it. I own a house in Japan and its price keeps going down, so I'd personally benefit from some inflation in that country.

Inflation is a bad thing, though. It's like a hidden tax. When it happens, the prices of assets go up and the purchasing power of money goes down. So, people with houses are better off and people with cash get screwed.

Why Do Governments Want Inflation?

Because! Reasons!

Maybe politicians are asset rich and cash poor, so they're trying to rig the system in their favour. Yes, we'd all love the believe the worst when it comes to politicians, damn their hides!

A better reason, however, is that they're trying to avoid deflation. Even though inflation is bad and deflation is the opposite to inflation, I'm sorry to say that deflation is worse! It's usually accompanied by unemployment for reasons that I'll explain later. Anyway, having a little bit of inflation gives us a buffer against deflation, and we don't want to play with a limp balloon.

What Causes Inflation

Inflation is caused by people jacking up their prices. That's it. Mystery solved. You can tell your government.

The thing is, anyone can increase their price, but if people aren't spending their money on these more expensive things, the prices will come down again. To keep the prices up, two things are needed:

1. Money
2. People with a hankering for spending

If there isn't enough of either one of these, you'll either have deflation (bad) or a balanced economy (good, but at risk of crossing over into deflation).

How To Inflate The Balloon

Add more money into the economy so that people can get some retail therapy. The more money there is circulating around the economy, the more inflation you'll have.

If you add too much money, you'll get hyper-inflation, which is terrifying! I won't go into detail here about how to fix that, but you just need to cut spending and/or increase taxes. Easy.

Isn't This A Bubble?

An economic bubble inflates when the amount of money people have borrowed grows faster than the amount of money they earn. If they keep on borrowing, of course it's going to burst!

I remember a time when banks wouldn't lend you more than two and a half times your annual salary for a home loan, no matter how much you cried and begged. Thanks to deregulation, they can now preserve your dignity by lending you many times more than that. As banks can keep giving bigger and bigger loans, this means that more money is going to people who want to spend on real estate. Prices go up and they stay there until they go up some more. That's how housing becomes unaffordable.

As the salaries of home buyers aren't going up as fast as the price of real estate, their disposable income shrinks until it's gone. Then they're at serious risk of not being able to repay their loan if something unexpected happens like an expensive illness in a country without free healthcare or losing their job, etc. If enough people stop repaying their loans, you get an economic crisis, suicides and... deflation.

Why Have Governments Failed?

They haven't successfully caused as much inflation as they like because:

1. They've been injecting money into the financial sector and not the real economy (hey, maybe that's been their real plan all along?)
2. They don't understand how money works any better than the silly-billy economists they pay to advise them
3. They've relied heavily on having the private sector (i.e. banks) do the job for them, which only works when there are enough credit-worthy borrowers looking for money
4. "Money printing" is misunderstood and most people (both online and offline types) think that it's always bad

Conclusion

If you were wondering why houses are so expensive that you'll only ever be able to rent, now you know why. If you were wondering why getting a degree has become a gateway to debt slavery, now you know why. If you were wondering why designer handbags and shoes are more expensive in Japan, now you know why. The price will always go up to whatever the market can sustain.