When I was in high school, I took an economy class. Up to then, I thought that inflation was caused by greed. Shoemaker charges more for his services, shop owner has to raise price of shoes, people need to get paid more to afford shoes, employers have to pay more to keep employees else they find better paying jobs so they can afford higher-priced shoes.
Then my economy teacher tells me, “No, inflation is mostly caused by the government printing more money.”
Then suddenly I understood. The more money there is in circulation, the less it’s worth. This concept was cemented in my mind when I watched a Duck Tales episode titled Dough Ray Me in which the economy was flooded with quarters due to Huey, Duey, and Louis using a duplication device to increase their funds. But the the device had a bug. Anything you duplicated would continue duplicating itself, along with its duplicates. Next thing you know, the streets are overflowing with quarters and a candy bar costs $10 trillion.
If you want to see runaway inflation at work, visiting Zimbabwe right now would be a great idea. While it seems like there is always some country somewhere with runaway inflation (often resulting from a corrupt government), Zimbabwe is in the midst of it right now.
Visit this blog post for some good stuff. My favorite picture is this one:
Notice the issue date of July 1, 2008. And then, notice what essentially amounts to an expiration date:
The value of a $100 billion dollar bill today? As of this writing, just under $10,000 US. In other words, one U.S. dime is worth $1 million Zimbabwe. So your pocket change makes you a multimillionaire… in Zimbabwe.
This is what happens when the government pours money into the economy. Think about that next time you get free money in the form of a economic stimulation check.