Why Is There Inflation?

The inflation we are experiencing was caused by the COVID stimulus payments. Once you send people “free money,” they start spending. An enormous amount of new money that was freshly printed enters into circulation. That makes money less valuable. It’s like diamonds and gravel. Diamonds are a lot more rare, it’s harder to get them, so they are more valuable. And gravel is abundant, so it’s not valuable. A car would cost, say, 5 big diamonds but the same car would cost 5 big piles of gravel. We have turned our money from diamonds into gravel by printing a lot more of it.

Putting a lot of newly printed money into circulation always makes money worth less. Why doesn’t every country print a lot of money and make every citizen a millionaire? Because that would devalue money and everybody will be poorer than ever. The only real way to stimulate the economy is to put money into making something. Cut taxes on business, remove regulations, and people start making more things or providing more services. But putting money directly into people’s pockets – attractive as it sounds – only makes them poorer because that money is worth less and can buy less.

This is why everything is more expensive. The only way to go back to normal would be to remove that extra money out of circulation. How can a government do that? There’s no other way than raising taxes on the people who would start spending less. Those people wouldn’t be the rich or the poor. It would be the middle class. And taxing the middle class is a political suicide. So we are stuck.


14 thoughts on “Why Is There Inflation?

  1. Milton Friedman’s insight into inflation as a monetary phenomenon is applicable here. The COVID payments certainly spurred our current difficulties but don’t forget the Quantitative Easing (QE) that expanded the money supply. It is true that most of the QE money got diverted into stock market speculation, but eventually at least some of that money had to make it back into the general market, increasing prices as a result.

    “be sure your sins will find you out”
    Numbers 32:23


    1. The QE didn’t cause this kind of inflation in 2008-9, though. I agree that the monetary policy has been unhealthy but these trillions in cash payments precipitated a collapse that could have at least been drawn out.

      I’m with you, though, that QE sucks.


  2. Probably contributed to it, but not as much as all the PPP free corporate money, corporate tax cuts, eternally low interest rates for wallstreet , and corporate bail outs.

    I hope we don’t fall into this mistake of blaming normal people getting some money while corporations were able to engorge themselves with easy money and they don’t even get a second look.


    1. This is not a political thing. Corporate handouts are reprehensible, I’m completely opposed to them. But they don’t cause inflation. They cause other bad things but not inflation.

      Nobody likes this post because it’s not partisan. Both Trump and Biden contributed to the problem.


      1. There are many causes of inflation. Expensive oil and suddenly not being able to obtain cheap goods from China also contribute to the inflation.


      2. Money had to be created for bail outs. At the root of the problem is the artificial creation of money by the government. My point is that by and large this has been done to benefit corporations far more than middle class / low income people who don’t have billions to put into the stock/housing markets where most of wealth creation happens nowadays. Why do you think the middle class is shrinking so much while the richest get far richer?

        So yeah, student loan forgiveness and COVID payments contribute to inflation, but to me that was minuscule compared to over ONE decade of free low interest money and QE coupled with more tax cuts for corporations, which has done far more to increase the artificial money supply.


        1. I think the point that is missed the most is that it is not the billionaires who benefit the most but the upper middle class who tend to get the best jobs and have the largest investment in the corporations.


        2. There were corporate bailouts in 2008 but no inflation. A hedge fund guy who gets a bailout doesn’t go spend it at the mall. I’m still against bailing out the hedge fund guy but there’s no connection with inflation.

          The shrinking of the middle class is a very bad phenomenon but it was happening long before the current inflation.

          The inflation was created during COVID and there’s absolutely no way to reverse it that isn’t political suicide. This is why criticizing Biden for not reversing the inflation is wrong. There’s quite literally nothing he can do at this point.

          The inflation will stop eventually and the currency will stabilize. But this hit of 10% we have taken will not be reversed.

          Now imagine what the UBI would do to the value of the dollar.


  3. Money is mostly created by bank lending. The main way to reduce the money supply is by increasing the interest rate. This reduces borrowing (for example credit cards) and increases saving.


  4. “The inflation we are experiencing”

    I’m assuming this is just US inflation you’re talking about cause it’s bad here with fuckall in the way of covid stimulous payments…
    Awful European energy policy (ie trusting russia to not be batshit insane) plays a role but I’m sure a lot is just financial fuckery….
    And in the UK apparently Sunak’s first order of business is……… (wait for it)……….. spending cuts! More austerity! And he’s reversing Truss’s “We need to produce as much energy as we can” policy as well! So….. there’s that…


    1. Speaking from Britain I’m not quite sure what you mean by more austerity!

      Our current left-wing government does get criticised by the hard left for not funding all of their pet projects, but UK spending has never fallen in value, at least in the last 40 years.

      There have been three years where the inflation-adjusted value has fallen, 2011-12; 2013-14 and 2021-2 (at this point I should mention that UK government years are based on the 21 March Lady’s day quarter, adjusted when we adopted the Gregorian calendar. For simplicity assume they run to 31 March, it might be 5 April but I’d need to check…)
      The 2021-2 spending is still 24% above the austerity-ridden 2018-19 year!

      It is no surprise that the markets don’t trust the UK, we have an appalling record on government spending, Johnson is a green socialist and Rishi pissed cash onto anyone who said covid-boo at him.

      Truss tried to regain some control but failed completely by looking at the tax changes before being brave enough to cut the costs.

      Essentially, the UK is screwed, but certainly not from any attempt to be austere!


      PS I agree with you on the energy production.


  5. “Diamonds are a lot more rare …”

    Only because the supply chain has been throttled to the point of nearly choking itself out of existence in order to maintain a false economy.

    Anyone with industrial knowledge of abrasives could point you to suppliers of nearly perfect crystalline carbon (aka “diamonds”) that are only obvious as “synthetics” because of the lack of naturally occurring impurities that occur along pseudo-random density distributions that also match specific physical mining locations.

    That James Bond 007 thing where “conflict diamonds” can be profiled isn’t science fiction.

    And the same is also true of most “gem stones” such as rubies and sapphires (technically the same mineral), emeralds, amethysts (which are haute couture quartz), and so on.

    The ones that have an industrial use could be nearly to completely indistinguishable, but it’s cheaper not to add some of the impurities to the high end of these crystalline products for industrial uses.

    If you want this kind of physical investment, metals are a better situation.

    When the false economy for “gem stones” eventually collapses, those metals will still be as rare as they were before, and that’s because nobody has a way to transform metals that’s cheaper than the natural product and also scalable to producing it in sufficient quantities.

    It’s been possible to fake diamonds for over a half century and crystalline corundum for over a century.

    Roll that fact around in your head for a few moments so you can let it take effect.

    (Wikipedia’s ready when you are if you decide you want that “fact check” on your own, BTW.)

    The closer you are to asking the right kinds of questions as to why this false economy continues to exist, the closer you will be to understanding what represents wealth and what doesn’t.

    As for Demotrash’s comment: Florida had a 26 billion USD budget surplus and is on track for having an even bigger budget surplus, so this very likely does nearly nothing.

    The person picking up my mail has sent some hilarious photos of DeSantis’s advertising through the Florida GOP, such as “TOP GOV” and “CHARLIE CRIST WILL DO TO FLORIDA WHAT JOE BIDEN HAS DONE TO AMERICA”, the latter with some creepy hand dominance like The Sniffer is on record doing to little girls.

    Boomers tend to love Charlie Crist because he’s one of them, but that’s about it.


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