IFB150: Economy Basics Pt2 – Inflation, Deflation, and Currency

Announcer (00:00):

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Dave (00:36):

All right, folks, we’ll welcome to Investing for Beginners

podcast. This is episode 150 tonight; we’re going to continue our discussion on

the economy. Talk a little bit about economic basics. This is going to be part

two. We’re going to talk a little bit about inflation, deflation,

hyperinflation, money, some of those fun topics. And we’ll try to make it

interesting for you guys, so you don’t go into a snooze fest. I was just

kidding. So I’m going to start us off a little bit and talk about a few of the

basics. So let’s talk a little bit about inflation and deflation. So basically,

inflation is the increase in prices for supply and demand. So goods and

services. So when goods and services and their prices rise, so that would be

considered inflation. The opposite of that would be deflation. So that when the

prices of supplies and, or I’m sorry, goods and services decrease, that would

be deflation. Now, most people think that inflation is a bad thing, and it’s

not a when prices are rising; generally, that’s a good thing because, along

with that, typically then wages are going to rise at the same time.

Dave (01:50):

So inflation can be a good thing and the only, there are

times when it’s going to be bad. So, for example, something like

hyperinflation, hyperinflation is when the prices rise more than 50% in a

month. And that’s not good because wages are not going to increase at that

weight, at that rate, which means that things are going to cost more and we’re

not going to be able to buy as much. And as we’ve talked about before, that all

kind of feeds into the economy. So when we’re talking about inflation and

deflation, we’re also talking about the monetary supply. So the monetary

supply, how that impacts both of those is when there’s credit expansion, and

there’s too much money in this system. Kind of like what’s happening right now

is the cysts. They’re flooding the economy with a lot of money. And what they’re

trying to do is they’re trying to tamp down on inflation by doing that because

when there’s too much money in the supply system that just me or the monetary

system, that means that there’s too much money chasing prices and it helps

lower the prices.

Dave (02:58):

Now, if they contract the money, in other words, they make

credit harder to get, and the money in the system gets harder to get out into

the system.