3 Terms You May Want to Learn (if you don't know them): Inflation, Hyperinflation, Deflation

Think about this. Every dollar you have is owned to someone by someone. How did we get to this point? Andrew Jackson shut down the Central Bank. There's an interesting quote towards the end. It's amazing that most of this came during the last 100 years. Amazing isn't it. We heard these terms especially more in these current times. Zero percentage interest rates seem good on paper but is it any good? So when you put your money in the bank, it doesn't stay there. I will do my best to use modern media to put these three terms into action. For me, gaining understanding of these 3 terms is a work in process.

Milton Freidman explains the Federal Reserve, where this all starts:


Inflation. Defined as.
a. An increase in the amount of currency in circulation, resulting in a relatively sharp and sudden fall in its value and rise in prices: it may be caused by an increase in the volume of paper money issued or of gold mined, or a relative increase in expenditures as when the supply of goods fails to meet the demand. - Websters
b. A persistent increase in the level of consumer prices or a persistent decline in the purchasing power of money, caused by an increase in available currency and credit beyond the proportion of available goods and services. -American Heratage
c. The overall general upward price movement of goods and services in an economy, usually as measured by the Consumer Price Index and the Producer Price Index; opposite of deflation.-Investorwords.com
d. a general and progressive increase in prices; "in inflation everything gets more valuable except money" [syn: rising prices] [ant: deflation, disinflation]- Princeton University


Deflation, as defined by investwords.com:
A decline in general price levels, often caused by a reduction in the supply of money or credit. Deflation can also be brought about by direct contractions in spending, either in the form of a reduction in government spending, personal spending or investment spending. Deflation has often had the side effect of increasing unemployment in an economy, since the process often leads to a lower level of demand in the economy. opposite of inflation.
Other related terms listed below:
Disinflation - A drop in the inflation rate, i.e. a reduction in the rate at which prices rise.

Or wait until things get cheap, then cheaper, then cheaper. Prices fall, production and supply stalls.

Depression- A period during which business activity drops significantly. High unemployment rates and deflation often accompany a depression.

Reflation- The intentional reversal of deflation through a monetary action by a government.
This cartoon does a good job of explaining deflation:


This video is a bit more detailed, using late 20th century Japan as an example. Have we seen this picture before? What did they do that the US didn't?


Hyperinflation, defined as:
a. A very high rate of increase in the general price level. For accounting purposes, hyperinflation is defined in International Accounting Standard 29. The appropriate accounting treatment in the UK is explained in Financial Reporting Standard 24.- Encyclopedia.com
b. A period of rapid inflation that leaves a country's currency virtually worthless.- investorwords.com.
c. Bring a flatbed truck full of money to the store, leave with one sack full of groceries.- Me
This video explains the current situation.


Think Germany (early 1920's) and current day Zimbabwe:

Hyperinflation in modern day ($300 Zimbabwe= $1.00 USA. How's that for an exchange rate?). Modern day chaos:


Peter Schiff on the dollar and bonds (earlier this year). Less government and more private sector job creation.