Table of Contents
Introduction To Inflation
Inflation is defined as a general increase in the price of goods and services in an economy. To put it simply, when your currency gets a dip in value the prices of goods and services gets hiked to compensate effectively making things for you, more expensive if you earn in your local currency since your currency’s purchasing power gets knocked down. When inflation of goods and services occurs, at the same time there is a devaluation of your currency’s monetary value.
So if your currency looses ground against the dollar, mostly the prices of goods that are imported will take a hike such as gas, diesel etc. These essential items cause the total value of everything to increase since the manufacturer has to take into account the inflation. Currently, many countries are seeing hyperinflation and this isn’t new, instead it has been going on for several years.
There are many countries where only a single dollar bill is enough for a lot of things. Such countries can take steps to counter inflation by several methods. However, to tackle a problem you first need to learn how that problem exists.
Causes Of Inflation
There exist many causes of inflation, some directly linked to the dollar and mostly linked to the government’s actions in terms of their finances. A very common reason can be that there is a surplus of money in circulation which is a bad thing for inflation.
If an increase or surge in currency is not met with an equal or higher surge in production of goods and services then there is just a constant supply but no demand of that magnitude.
Internationally, a country can see large amounts of inflation if your country looses international standings or is seen as an unstable country. For this reason having an intelligent cabinet and intelligent members in the government can help your country since there will be predictable government which won’t be making any rash decisions. Having unqualified members in your government and assembly seats is root cause of instability, by unqualified members we mean such people that are only selected by having ties to other people in their country’s army and other govt positions. In this way these other people overlook better candidates for the position and make a cycle that allows for bribery and cash for high power positions.
Many Third World countries suffer from this problem since their governments are questionably admitted to their seats they allow for these things to happen.
Why Unqualified People Are Bad For The Economy
Unqualified people having a say in matters they have no experience dealing with or having those people as politicians that have no history of being a politician or any family history nor any experience is a very dangerous thing. When these people are met with problems regarding their government positions which they are not qualified then they might give suggestions to solve the problems that might not be very wise and not an option a qualified person would’ve ever took.
The problem for the economy doesn’t lie in this place instead, the problem is that these people might be facing inflation but not know how to deal with these issues and apply some policies that may work for now but instead have negative effects for the future of their country.
Negative Effects Of Inflation
In our day-to-day life there are many negative effects that cause a devaluation of our currency as a result of inflation. When a currency looses ground against another currency such as the dollar it causes the other currency to be less valuable and thus makes the spending power much lower. This affects many people such as fix salary people such as retirees etc. which have access to only a fixed amount of money and doesn’t get a re-evaluation according to the inflation.
Another negative effect can be the cost of importing goods is greatly increased. Consider this scenario, you’re importing a luxury car from overseas or some type of car from overseas, it costs 40-$50,000. If your currency in which you are paying for the import and car is less valuable than before then, where it was costing you lets say 60,000 in your local currency it is not costing near 20,000 more thus the car may have retained its value in dollars, but for you in your local currency it is much more expensive.
Other than just making things much, much more expensive another thing about inflation is the fact that it can be hard to counter, however if this isn’t countered only the increase of cost causes much political turmoil and creates a sort of civil unrest. This unrest can make the people that are under force from all sides and getting crushed by the astronomical prices and hikes of goods to pop under pressure. After this it is unsure what will happen next.
Keeping these things in mind we shall now learn how to keep inflation in check.
Controlling Inflation
A country’s financial regulator holds the responsibility of keeping everything in check in terms of finances, this regulator is the state bank or the central bank of that country via a monetary policy, that refers to the actions of a central bank or committee that determines the size and growth rate of the supply of money in the country.
For a country such as The United States, the Fed’s monetary policy goals include moderate long term interest rates, and in general price stability and or a constant amount of inflation per year. These stats help business owners to plan for their future keeping the interest rates and devaluation rates in mind.
In time periods of financial instability the financial regulator is responsible for keeping finances in check such as for the US in 2006, the US Fed kept the interest rates near 0% and implemented a bond buying scheme called QE which was at the time criticized however later on these decisions proved to be the correct response since the inflation peaked only a year later and had a steady decline over the next 8 years.
How To Protect Yourselves Against Inflation And Recession
There are a wide range of ways to effectively counter inflation, this all lies in your investment techniques. While there are times of economic turmoil, a couple smart investments can set you up for life such as commodities in that time such as beef, oil, grain, rice etc. Instead of investing in some stocks which may or may not be worth your while.
No doubt that buying during dips is a great way to earn in the long run but sometimes that investment might not pan out as you may have thought it would. Going with conventional choices such as oil, grain, etc is a better option.
If you want to move away from that, there is also the option of real estate. To earn some quick money people might sell off their extra assets such as their houses and in most cases the values of the houses in general reached a great low, the housing prices from then have now reached the skies and for that time, investing in housing would’ve been a great option.
The U.S. government also offers Treasury Inflation-Protected Securities (TIPS), a type of security indexed to inflation to protect against declines in purchasing power.
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