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Effects Of Inflation

EDITOR, The Tribune.

Inflation is the rate at which prices of goods and services rise and therefore the purchasing power of the currency is decreasing. I will argue that inflation has done more harm than good and is by design.

People with assets like gold, property or stocks benefit from inflation because that increases the value of their assets. Those who hold cash, which is the vast majority, dislike inflation because their cost of living increases and their cash gets to purchase less.

From 1800 to 1900 the world experienced deflation and an increase standard of living. According to inflation calculator what cost $1000 in 1800 would cost $489.40 in 1900 or $2043.30 in 1800 would have the same purchasing power of $1000 in 1900.

This is a deflation of 51% and an increase in purchasing power of 104%. It was a time of prosperity. It is a myth that an economy must experience inflation to have growth and prosperity.

This system of an economy based on debt was started with the creation of central banks. It became global when the US Central Bank, called the Federal Reserve, was created in 1913 Central banks affect the money supply by buying or selling government securities.

To increase the amount of money in circulation central banks purchase securities from commercial banks and institutions.

This freed up bank assets and they have more money to lend. The opposite is done to take out money out of the system. As no money is pegged to a gold standard central banks can increase the amount of money in circulation as required.

This in my opinion is the main cause of inflation. Banks only have to have a fraction of what they lend usually around 1/10.

The amount of money in the system is always increasing through loans from commercial banks.

A bank can lend up to ten times what it has using the central bank system.

The borrower and his asset is the collateral. The central bank print the money for the commercial bank to lend hence money is created primarily by debt.

Since borrowing increases the money supply and therefore increases inflation.

Remember the barrower must pay back with interest since the money he barrows will value less by the time he pays it back and the lender has to make a profit.

This system hurt the poor since they have no tangible assets that will appreciate. The rich benefit from this system because they have assets and are therefore getting richer.

Consequently, the rich get richer and the poor get poorer.

The present global monetary system must change or the gap between the rich and poor will increase to a point that it can cause social upheaval.

The Bahamas uses the central banking system. Only three countries don’t use it - Cuba, North Korea and Iran.

This system was design by the wealthy to benefit them. What can a regular person do – gain knowledge and use it.

BRIAN E PLUMMER

Nassau,

September 24, 2019.

Comments

birdiestrachan 1 week, 4 days ago

The service charge on a saving account is $5.00 each month. And there is no interest to mention. It is Hard for the Bahamian people and getting worse. Only God and God alone cares about us.

Imagine the little money that comes from NIB and the bank takes $5.00 out of it. and all the righteous have nothing to say.,,

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Sickened 1 week, 3 days ago

And obviously God ain't checkin'. He just destroyed two of our islands.

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Porcupine 1 week, 3 days ago

Mr. Plummer,

You are absolutely right regarding the future growth of economic inequality based on how money is created. It bears restating. Money is created each time a commercial bank makes a loan. The fractional reserve system is flawed at its core. Except for the rich. If you follow the argument through, you would understand that economic crisis are only crisis to those not at the top. If you have plenty of cash, and the economy tanks, you are able to go in and buy assets at pennies on the dollar. This is exactly what the big banks did during the 2007 crash. It is all about greed. It has nothing to do with making the world a better or fairer place. I'd go further and say that the economic system we call Capitalism is an even greater threat to life on earth. As is now proving to be the case. We are just slow to catch on. Thank you for your letter, Mr. Plummer.

https://www.youtube.com/watch?v=MechH...">https://www.youtube.com/watch?v=MechH...

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Sickened 1 week, 3 days ago

"Money is created each time a commercial bank makes a loan." So, seeing that commercial banks in The Bahamas are no longer lending money (in any significant way) then our economy will be hard pressed to grow.

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