Inflation: What It Is & Why It May Be Your Best Opportunity To Earn Money!
What is inflation?
Why is it rising?
Why are people worried?
What do interest rates have to do with it?
And how the heck can I take advantage of this?!
These are the things this article will cover… and then some.
And how the heck can I take advantage of this?!
These are the things this article will cover… and then some.
Inflation Is When There Is More Money In The Economy Than There Is Products To Spend It On
If you’re like most people, the simplest definition never does it for you, so let’s try this analogy.
Imagine a village that has one store where people buy all of their stuff,
( food, clothes, etc.).
But one day, the government shows up because they’re worried about the economy of this village.
So they tell the village people that if they want to take out a loan, they’ll ensure that the banks will not charge them a high-interest rate.
This is done by the government to encourage the people of that village to take out loans and spend money.
Oh… and they may sometimes (like the recent pandemic) give people free money to everyone in the village (via stimulus checks, government aid assistance, etc.).
And everyone in the village will be thinking…
“Awesome, I’m feeling pretty rich!”
Villagers are now going to the store and buying way more stuff. That’s because they have excess money in their pockets due to taking out low-interest loans PLUS the free money the government just gave them.
Many of them have been eyeing the fancy electric bike in the store.
Something that they couldn’t afford before or couldn’t justify buying.
But now they can because they have all this new money they have.
And now, the village store owner is thinking…
“Awesome! this is great for my business!”
But he’s running out of bikes and other merchandise to sell as villagers keep buying from his store!
In fact, he’s running out of everything because now these people have extra money, and they’re buying way more than they used to.
The store owner is now thinking…
“My store’s supply can’t keep up with this new demand; I should RAISE my prices!”
And THAT’s inflation.
That village represents all of us.
The store represents our country’s entire economy.
Because when there’s extra money floating around, and people want to spend it faster than businesses can produce and deliver the supply…
…then all of the businesses in all of the industries raise their prices at the same time.
And THAT’s inflation.
Inflation Is A Natural Part Of The Economy
It’s a good thing in small doses because it means that the economy is growing.
It’s why movie tickets used to be $0.07 cents, and now they’re $15. And slowly, over time, it is okay.
Now, let’s go back to the village and see what happens if we keep going at this rate.
The store owner has now doubled his prices on the bikes he sells.
The interest rate is super low, so the store owner takes out a loan to build a new factory to make bikes.
This is good because it means he’s growing a business.
But then government stops giving the village people money:
- Government increases the banks’ interest rates (from 2% to 6%)
- Government stopped giving free money via stimulus checks and aid assistance
- Government stop printing money
And the prices of the items at the store are still double!
This is most unfortunate for the store owner because now…
…no one is buying all of the new bikes that he manufactured in his new factory!
Now, he has this new factory and more employees, but no customers.
Now, he has to shut down the factory, lay off everyone, and slowly start lowering his prices.
This is called recession.
When COVID Shut Down The world, Governments Gave us Free Money
The government was telling their citizens…
“Don’t panic and hoard all your money!”
“Instead, borrow money from your bank and spend that money to keep the economy going!”
In the U.S. for example, they literally sent American citizens $3,200 checks.
They gave $600 a week to unemployed people for months and months and months.
They gave subsidies to people with kids.
They increased spending on food stamps.
The U.S. gave trillions and trillions of dollars of stimulus money.
This was vital aid to people in need.
And even people who didn’t lose their jobs ALSO got a check in their mails!
It was free money for everyone, and they spent it.
Americans, now with excess cash, were thinking…
“YOLO, I’m buying a boat or an R.V. and the things that I’ve always wanted to buy before but could not afford back then.”
But pair all this new spending with the fact that the pandemic also made it harder for factories and ships, and retailers to deliver all of this merchandise…
…and you’ll have an economy where people have way more money than usual, and they’re ready to spend it…
…but the economy can’t get the consumer goods stuff fast enough in the hands of the consumers.
So what do businesses do with all this insane new demand but very limited supply?
They raise prices all at the same time.
And THAT’s inflation.
What Does Interest Rates Have To Do With Inflation?
Most countries have a central bank…
These central banks are like “The puppet master” of their respective countries’ economies.
And they’re the Bank Of All Banks for that country.
And it’s not like a typical bank that stores our money and then lends it out and collects interest to make a profit.
That’s what a normal private bank does.
The central bank (which is called the Fed in the U.S.) is run by the U.S. government.
Their job is to set the rules or policies that all the other banks must follow.
And the central bank isn’t motivated by profit.
Instead, their job is to babysit the economy to keep it growing and to ensure people have jobs.
To ensure that prices don’t fluctuate too much so that we can keep growing nicely.
To avoid slowing down commerce.
To prevent recessions.
And THAT is what your country’s central bank is for and why it exists.
But seriously, these central banks are like puppet masters…
And we are the puppets!
The central banks are the ones that pull strings in the economy to get us to spend our money in a certain way.
Which in turn affects how much businesses raise or drop their prices.
And guess what?
It works!
One of the strings they have to pull in the economy is the interest rate.
Want to borrow money to buy a car or a house or expand your business?
Of course, people will be way more likely to borrow money if you only have to pay 2% interest on that loan as opposed to 6%, right?
Your country’s central bank knows this, so that’s precisely what they’ll do. They’ll lower banks’ interest rates, so you’ll take out a loan.
Lower Interest Rates Equals People And Businesses Wanting To Borrow And Spend Money
During the pandemic, when the central bank wanted everyone to spend money, they lowered the interest rates.
Resulting in people borrowing and people spending way more.
The central banks did this because lowering the interest rate can help stimulate the economy.
The problem is, here we are once again.
We’re in this same place where there’s now too much money to borrow and spend…
…and not enough goods and services to spend it on.
So what do businesses do all at the same time when this happens?
They raise prices to meet all this new demand all at the same time, and now your money is worth less.
And THAT’s inflation.
That’s what’s happening right now in 2022.
Prices of goods, all rising at the same time.
That means that your money is now worth 8% less than it was last year.
The same money is worth less because your purchasing power just got diluted.
And imagine if this keeps happening?
What if instead of being lowered by 8%, its purchasing power got lowered by 50%?!
What if your hundred-dollar bill will suddenly be worth only $50?
And that’s when people start to freak out.
Don’t think this is possible? Think again.
Inflation In Venezuela
Venezuela’s inflation got so out of control that their money became virtually worthless.
Venezuelans literally need a pile of cash just to buy bread!
They even started using the currency itself as RAW MATERIAL to build things! And you’ll even see people on the street making purses and bags and sculptures out of cash because it was worth more as a raw material than as currency, which is insane!
That’s a very extreme version of inflation.
And similar things have happened in several African countries that use mobile minutes as currency.
Your country may still not be in that situation or even close to that situation.
But it’s an example of how tenuous modern economies are.
Because their currency is NOT pegged to gold.
They’re pegged to people believing that this paper money is worth something.
Our country’s economy – built on human psychology – starts to falter, and we fall into a recession or depression if inflation gets really bad.
And it can quickly go off the rails if unregulated by the central bank, just like what happened in Venezuela.
Which is exactly what your central bank is built to avoid.
Central Banks Around The World Are Now Raising Their Interest Rates Of Banks
As of this writing, the central banks worldwide are back to pulling their strings. And now, they’ve started raising their banks’ interest rates.
They’re gently raising the interest rate to cool down the hardcore spending and borrowing and see if they can steer the ship back on course.
Hopefully, this strategy by our central banks works. Hopefully, our fellow citizens don’t use our money as raw materials to build purses and bags because it’s lost its value!
So How Can I Take Advantage Of Inflation?
According to the Central Statistics Office of India, milk prices have increased by 47.3% in the last eight years (2012-2022).
But what’s crazy is that milk production increased by 47% over the same period (2012-2022)!
THAT’s Inflation.
And what people did back then to hedge against this is buying gold. But experts have realized that this is a poor tactic.
This is because the price of gold is set by how people feel about it. When people are feeling good about gold, the price goes up. When people are feeling bad about gold, the price goes down.
But even though feelings go up and down, the amount of inflation (measured by how much prices go up) doesn’t always have a lot to do with how people feel about gold.
Bitcoin and Ethereum prices are down? Well, you’re in luck!
There’s never been an easier time in history to make money off of crypto than it is today. Why?
That’s because it has been proven by financial experts that Cryptocurrency is a superior hedge against inflation compared to Gold. And once inflation has reached its highest point (probably by the end of 2022), guess what people are going to do to hedge against this?
Buy Crypto. Lots and lots of it.
With the intention of TRADING it once inflation slows down or stabilizes!
And you can start by investing in Bitcoin, Ethereum, or Litecoin. Or, if you’re feeling adventurous, you can try trading other cryptocurrencies. Just be sure to do your research first and always use a strong password when storing your coins!
And if you’re looking for the fastest way to start investing in crypto, then look further than Ananda! The only platform that caters to aspiring crypto investors looking to make their first online trade.
So sign up now to learn about our platform now while crypto prices are STILL ridiculously low!
And while those African countries that are ravaged by inflation still HAVEN’T figured out that cryptocurrency is far superior to using mobile minutes as currency!
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