Monday, 14 June 2021

Supply and demand are as fundamental as one can understand. The inherent value of things, regardless of whether it is eggs or banknotes. A shortage of eggs causes a rise in the price of eggs. In the same way, an oversupply of money causes a devaluation of the money. 

We fully understand the situation with eggs, but we customarily give little attention to the money supply. In 1971, President Nixon decoupled the US dollar from gold. As a result, money lost its inherent coupled value, and its worth is subject to traders agreeing on its value. Society determines the value and allows otherwise infeasible trades to become possible. Traders get more when trading assuming that fiat money is valuable

Since cancelling the direct convertibility of dollars into gold, the United States started printing fiat money, and now fiat monies are used globally. An oversupply of printed banknotes devalues the money in circulation. Excess money seeking a constant egg supply causes a virtual shortage, and a resulting price increase called inflation.

There seems to be no limit to the provision of money to satisfy demands or diversity of needs. As a result, the Western world is wallowing in money, causing undisclosed inflation. Government treasuries quietly benefit from inflation as an alternative to taxes. 

In a stable economy, a money supply needs to be created by 'egg layers'. Money earned by many celebrities and through inappropriate bonuses finds its way into real estate and the stock market; it inflates the value. Non-essential ventures act like blotting paper. They mop up surplus money and return it in inflationary ventures that benefit the wealthy at the expense of the masses.

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