Politics: Inflation 101, what causes it and how Steemit/Cryptos are the solution
Full credit above to Thomas Jefferson for the quote and the people who made this picture. Hope you enjoy this article.
For years I’ve always been heavily interested in politics, even at a very young age. I still remember to this day two books which changed my life as a kid. The first being “Why Government doesn’t work,” written by Harry Brown who is a hero to me. The second being “Whatever happened to penny candy” if you’re ever interested in looking you can see below.
It gives a very simple yet fairly detail explanation of the history behind inflation which led to how things are today. Now the goal of this blog/article is to give a simple, straightforward understanding of inflation. A little bit of history, what causes it, along with how crypto coins are the way to help fix this problem.
So what is inflation?
The first question is what is inflation? If you google it you will get this answer.
ECONOMICS
a general increase in prices and fall in the purchasing value of money.
"policies aimed at controlling inflation"
Simple enough, but then this begs the question what causes the decrease in value and increase in money? The short answer is supply and demand. Like everything else if there is more supply then demand prices go down. When the opposite is true with more demand than supply they go up. This holds true for money as well.
The simplest example is to think of something very common which is easily purchased. Take a ink pen or a lead pencil for example both very common items with low value. Now what would happen if all of a sudden there was only one ink pen left in the world? Even if we have alternatives I guarantee the cost of the ink pen would skyrocket, same with a pencil if there was suddenly only one left. Basically the same holds true for our money supply.
There are things which can have a indirect or even more direct impact on the overall cost of things. Oil prices are a good example when oil supply goes down the cost goes up. This in turn raises the cost of gas. Gas is used for everything from heating, to energy, driving, delivering food, the things we buy, etc. So a sudden uptick in oil prices could seemingly increase prices of other things as a result.
But things like that isn’t really the core cause of inflation today. When people say the word inflation or say how “back in the day” candy was only a nickel there is a reason why. And that relates to supply vs demand. The supply of money is far outpacing the demand which creates inflation. If you’re wondering how this is possible we will do a quick history lesson so this makes sense.
To this day many scholars debate about the rise and fall of the Roman Empire. One thing which is for certain though is that bad monetary policy help to contribute to this problem. Originally the roman’s used a mostly silver coin about 95 – 98% purity starting around 211BC. This however changed though in order to pay for ever increasing expenses they began to do what we would call debasing the currency.
That is they tried to made the same coins but with a lower silver content in them. Over time this only became worse because to further cut costs the coin was less and less silver while using more common metals with less value. The result was that people both outside and inside the empire valued the older coins more due to there being almost pure silver. Lower supply of pure silver coins caused a increase in demand for pure silver coins which in turn caused a inflation of prices across the empire. While attempts were eventually made to rectify this much of the damage had already been done.
Wikipedia has a good time line of this.
https://en.wikipedia.org/wiki/Denarius
This article gives a very long and detailed account of what happened from begging to end: https://www.lewrockwell.com/2009/08/joseph-peden/inflation-and-the-fall-of-the-roman-empire/
This was a early example of debasing a currency which eventually lead to inflation. Now when you fast forward to modern times we have something similar.
The Danger of Banks
*“I believe that banking institutions are more dangerous to our liberties than standing armies.”* - Thomas Jefferson
Truer words have never been said because when you control the money you really control the people. America had a central banking system of sorts although this was at one point effectively abolished and there was a period known as the free banking era. If you are curios to know how he accomplished this you can read details here.
http://www.history.com/this-day-in-history/andrew-jackson-shuts-down-second-bank-of-the-u-s
Around 1863 a national bank act was passed to help begin the process of establish national banks again. This came to full swing when congress passed the Federal Reserve Act of 1913 effectively establishing the Federal Reserve system. The Federal Reserve still exists to this day issuing Federal Reserve Notes which we now know as US dollars. So you're probably wondering where this is going.
The Gold Standard
The US system had settled into a system where it was actually backed by gold completely somewhere around 1879. That meant you could take your money into a bank and trade it for equivalent gold the paper money was more like a place holder.
Now at this point there is room for some scholarly debate as the Great Depression was one of the biggest reasons which seem to help bring about the end of the gold standard. While some argue it was due to the gold standard that the great depression happened I would be willing to say otherwise but that's for another article. In 1933 Franklin D Roosevelt forbade banks from paying out in gold to help get control of the depression and lack of confidence in the economy. The government then required all gold certificate and bullion above a certain value to be turned in. Shortly after Congress aborted the gold clauses so that no one was required to pay in gold anymore.
The gold standard was effectively brought to an end at this point allowing the Federal Reserve complete control of the money supply. This truly came full circle in 1971 when Richard Nixon announced that the US would no longer convert dollars into a fixed value of gold for foreign countries who held the US dollar.
The irony of all of this is that when the US dollar was picked as the world reserve currency around 1944 it was largely due to the fact that the US held more gold then any other country in the world. Where all of this leads to is that with the end of the gold standard in 1933 the Federal Reserve was free to artificially inflate the money supply.
Before the US dollar was backed by gold something with a real world value so there was technically a finite limit. You could only make so much money to match how much gold you had. But now the dollar wasn't backed by real value just the rule of law and faith. So the Federal Reserve could print as much money as it wished to inflate the money supply. Which is where supply and demand comes in. As the supply of money dramatically skyrocket so did the rate of inflation this caused the value of the dollar to drop dramatically. A inflation calculator can help show you a difference in the value of a dollar one hundred years ago compared to today.
http://www.usinflationcalculator.com/
While inflation is inevitable because of the laws of supply and demand what we have is unnatural inflation. The Federal Reserve has had the ability to print money none stop for years now which has caused the US money supply plus the national debt to swell to levels never seen before. Further details on the exact debt system we have with the Fed is beyond the scope of this article. In a future article I'll probably details of examples the run away spending the Federal Reserve has done and how that has created this huge debt system for us.
That in a nutshell explains what inflation is, what causes it and why it is a danger to us. When inflation goes up the dollars in our pocket effectively loses value making life harder for us all.
Enter Cryptos
So how are cryptocurrency the answer? Simply because crypto currency such as Bitcoin, Steem and others break away from the system where a central bank has final authority over the money supply. Every crypto is different in the system which they have but it is a system which usually does not have one central body controlling everything. Instead using some sort of consensus system. Being decentralized it's almost impossible for anyone person to control the supply or how the network will operate. Steem for instance uses a social platform on a blockchain technology. We produce something of value to others curated content be it for information or entertainment but there is a value to it which helps to produce more Steem. The same holds true for other things such as Bitcoin which have values for other reasons. There are good articles right here on Steem you can read about it such as this one.
https://steemit.com/etoro/@swisswatcher/why-bitcoin-has-value
https://steemit.com/steem/@kepo777/why-steem-steemit-has-value-opinion-piece
And there you have it. I hope you found this to be helpful and informative. Please feel free to upvote, follow me and comment. Any thoughts or ideas on what you might like to see next are welcomed.
meep
Meet to you too. ^_^
meep
The only problem that I see with cryptocurrencies is that they're internet based. That's a good thing, but it's also potentially a bad thing. They're dependant on access to the internet. If a government decided, for what ever reason, to shut down the internet in their country, access to the crypto is gone. There are other possibilities for loss of internet access such as a strong enough solar flare or an EMP, but these things are unlikely.
I guess nothing is perfect...
I can see why that is a concern but in this day and age I wouldn't worry about it to much. Generally when a country gets more oppressive such as Venezuela this helps push people toward Cryptocurrency as a viable alternative. Also like you mentioned most of these worse case scenarios are unlikely and there are methods to take crypto offline. Even in less developed areas such as parts of a Africa cyrptos such as Bitcoin are growing.
"In God we trust"? I think they misspelled FED in that one. ;)
A very nice article, it gives a good overview about FED, fiat and crypto, and why we Steemians believe the pave the wave for a better future.
Could you maybe credit the picture you used in the beginning, the Thomas Jefferson one? It would be a shame if someone could call your your great post "unoriginal" just because of that.
My suggestion for the next post: Any political topic, written the same style. It was a good read. If you need inspiration, just read what others write. My favorite muse is @dwinblood.
I can agree there. :-) Thank you, glad you liked the article.
I'll be sure to do so thank you for the advice. I follow dwinblood and will check his stuff out. I always enjoy a good political read.
I am not sure where to go with this so i'll try to speak academically on the subject at hand. The Great Depression was caused by too many regular Joe investors taking their hard earned money and investing it in the stock market...so much that they even leveraged that money to buy more stock in hopes of getting a good return. (leveraging='s borrowing) However, THAT money supply was cut-off ! Then a bank run off where everyone withdrew all of their money out of the banks,etc. That along with alot of monetary policy mistakes such as a non existential regulation guidelines as well. That being said, Yes Nixon removed the Gold Standard as you suggested but then backed the USD with oil, commonly referred to as the "petrodollar". The question is..what is The USD worth now in direct correlation to the price of oil/bbl? Seems as if they both are in a downward spiral...unless some geo-political event should un-fold. Nonetheless, good read!
Thank you I'm glad you found it to be a good read. :-)
I'll probably at some point post more in depth on the great depression. I will admit there's t many factors for one specific thing to be the cause but I don't think it was just due to over borrowing. Part of it was a perfect storm and bad investors. Also there is the fact that by that time the Fed had already started increasing the money supply then failed to respond to the stock market crash. As we saw the Federal Gov and JP morgan and privte investors were able to inject enough liquidity into the market to prevent the 1907 stock market crash from going on more than a few weeks.
But during the depression the Federal Reserve did little during the initial stock market crash to stop tons of banks from folding. So it was part bad market policy and part bad government policy which made things worse/drag on more. Additional bad government policies around the 1930s such as raising in some taxes and tarrifs for lost revenue only made things worse.
You're right about the petro dollar becoming a thing which I didn't really go into detail on. Though I find that to be somewhat misleading since that is more about standardizing oil prices in US dollar terms which helps maintain it as the world reserve currency. But it doesn't tie/back it to a standard exactly the same as the gold standard. That is part of why the Feds can so freely inflate the money supply now whereas it was much harder to back when we had the gold standard.
And yes you're right both are on a downward spiral. With countries such as Russia trying to cut us out of the petro dollar and trading directly with others in local currency it will only get worse. hence why crytpos such as steemit are truly the answer.