What is inflation and deflation?

When it comes to the topic of inflation (and its twin, deflation), there is so much confusion and misinformation floating around that many people, including the experts, miss the root of this evil. Here, we will collate together a collection of articles that clears the deck of many popular misconception of inflation.

First, we must have the right definition of inflation. The mainstream definition of inflation is the “general rising of price and wages.” However, this definition is deficient as these articles explains…

Now that we have learnt that the increase in the supply of money is inflation, the next question we have to ask ourselves is this: What is money? Here, we will take a look at a brief history of money:

From this short introduction to the history of money, we can see the degeneration of sound money (gold and silver) into fiat money (paper money backed by nothing but ‘confidence’) took the course of around a century. Obviously, it is far easier to create fiat money (by ‘printing’ them) than sound money (which has to be expensively mined).

In addition, through the fractional reserve banking system, banks have the power of creating money through the granting of credit as this article shows:

If money and credit can be created that easily, then does it mean that it can be destroyed just as easily? The contraction of money and credit is deflation:

Today, in this modern age of finance, money is far more complicated than what it was used to be (i.e. simple gold and silver). It has come to the point that it is very hard to even define what money is, let alone measure its quantity. Alan Greenspan, the former head of the US Federal Reserve was believed to have said “We don’t know what money is, any more.” So, what is the answer to this question:

The word “liquidity” is used as a convenient word to describe this mass of ‘money,’ as explained in this article:

Next, why is inflation so harmful? The following article explains…

Why are so many countries experiencing inflation?

Therefore, the extraordinary globally synchronised surge of all kinds of asset prices in the recent years is due to inflation as explained in this article:

How will inflation and deflation affect you?

The inflation/deflation debate is highly divisive and polarising. No wonder, many people are very confused by this contentious debate. These articles are meant to help our readers navigate through it: