History of Inflation: Why is inflation increasing so quickly?

If you look at the chart above, inflation was virtually nonexistennt until the 1900s. Sure there was the franc crisis in the 1790s (when the French government printed too much money). Sure there were a few years where the CPI dramatically increased. But on average, inflation was zero since the time of the first paper bills until the 1900s.

Starting from the 1900s, inflation has increased faster and faster. What happened? What changed? The U.S. hasn’t been printing money like Germany in the 1930s. In fact, printing money isn’t even a big cause for long term inflationary pressures oin developed countries these days.

One of the major reasons for the continual occurance of inflation since th e1900s is that everyone has become obsessed with GROWTH. Before the 1900s, governments just wanted their countries to be prosperous (long term prosperous). Governments just wanted the economy to be humming along nicely and to have citizens live good, peaceful lives. But all that changed by the beginning of the 20th century. Newer technologies were causing people to live life and a faster and more hetic pace. People were no longer satisfied with living calm, boring, peaceful lives. They wanted the newst technologies! They wanted excitment! They wanted increases in income! They wanted increasing economic prosperity!  At the same time, many economic indicators were set up to gauge the temperature of the economy. Politicians thought that if the economy grew substantially while they were in office, they would have a FAAAAANTASTIC chance of getting re-elected! So growth became the name of thegame. No more long term prosperity. Just growth. The faster and bigger the growth, the better! Politicians wanted growth in the economy so that theri term in office would look great, and citizens wanted economic growth so that they could fatten their wallets. Now add companies who absolutely LOVE economic growth (for obvious reasons), and you’ll see that EVERYONE wanted the economy to grow Grow GROW!

After a few decades, people have come to see the side effects. Inflation has eroded away 90% of the dollar’s value in the last 50 years. Remember the good old days when you could buy a combo at McDonalds for 89¢? Remember how a good bike used to cost only $20? (Now remember that wages weren’t as high as today back then either). Those days are long gone. Inflation begins with the citizens of our country; the consumers. Workers begun to demand higher wages in the beginning of the 1900s. But a more expensive workforce meant that employers had to raise the prices they charged for goods and services. Also, companies want to increase profits and revenue, so they raised prices for what they sold. A higher cost of living forced consumers/workers to demand even higher wages. And then the cycle repeats itself over and over again.

Since Alan Greenspan first assumed the position of Fed chairman in 1987, the government has tried to do everything in its power to prevent economic recessions. But what Uncle Sam fails to realize is that recessions can be good things. Recessions help balance out the economy, bankrupt uncompetitive companies, and make the foundation of our country even stronger. Unfortunately, politicians these days are too short sighted to see that. Recessions are often connected to inflation/deflation. Inflation is deemed ok, as it means the economy is growing, but deflation freaks everyone out. Deflation is deemed evil, since it’s often associated with negative economic growth. On the contrary, deflation helps bring back the purchasing power of government issued money. Imagine going to the movie theater one day fifty years later and pay 3 hundred dollar bills for your movie ticket.

One thought on “History of Inflation: Why is inflation increasing so quickly?”

  1. Why is inflation increasing so quickly?
    Gold Standard is a monetary standard under which the basic unit of currency (i.e. 1dollar, 1pound) is equal in value to a specified amount of gold.
    The Gold Standard was abandoned in 1971 under US President Nixon.
    Printing money makes inflation to accelerate.

    J T

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