in the 1980's great runup of inflation the US senate held an open group of sessions to help determine what caused this huge increase in inflation. Inflation hit 13% in Canada and interest rates when up to about 19%. All hell broke loose! Many people lost their homes as they could not afford to renew their mortgages for 19%. In today's terms, you would have to earn $150,000 per year to qualify for a $200,000 mortgage. Many people today have higher than that mortgages and so their yearly income would have to be much greater. As a matter of interest, only about 2% of the total Canadian or for that matter US population earn more than $150,000 per year so what I'm saying is that just about everybody would have to leave their homes behind and walk away. The banks would be left with homes that nobody could afford to buy so they would eventually have all their money tied up in property that nobody was buying. They would go bankrupt very quickly but before they did, the banks would call in many if not all their outstanding loans. Many business would have to come up with the money they borrowed to stay in business. When they couldn't (that's the reason they borrowed money in the first place) then they would go bankrupt trying to repay their loans. This lack of paying would bring down the banks one by one. The house of cards would snowball into a huge depression. To stop this, the central banks would try to pump huge amounts of money into the banking system to help them meet the demand from people wanting their money out of the bank. That would stop the bank from calling in all their loans and that would allow business to keep working. Now everything seems OK again. However, there is always a "cause and effect" and the effect of all this new printed money....money made out of thin air....is that...inflation would take off causing the cost of "things" to sky rocket higher. As a result a MacDonald burger might cost you $10 bucks and a bottled water $3. That coffee in Starbucks might end up costing $15. Who could afford that price? In the long run...nobody...because when your wage goes up to compensate for the higher costs of living, the tax man takes a piece of that money and that then leaves you with little or no extra money to pay those higher prices on a regular basis. The end result is constriction or belt tightening and nobody buys that coffee...or not enough to have those businesses stay in business. The business system begins to crack. Not the financial system which has been saved but the business system that doesn't have a "big Daddy" to pour money into it. The banks have been saved but the businesses pay the price. They lay off and that means that the people now pay the price. The ordinary person always pays the bills! What you're left with is reduced jobs but higher prices. An inflationary depression it's called!! In today's world...those jobs go "offshore" and will never come back.

That US senate meeting asked the country's financial gurus to identify the causes of inflation and everyone said it was the manufacture of extra money (out of thin air) and putting that money into the country's money supply. No other cause was identified. So just call up the country's money supply. In Canada, it's found in Stats Canada and you'll see that the central bank has been creating new money at the rate of about 12-14% per year for the last 10 years. Creating money out of thin air makes money worth less in purchasing power and that means that "things" go up in price to compensate. The "trickle down" effect is that the banks see the immediate effect on their balance sheets but the true cost that effects the people takes time to work its way through the business system to hit the people bit by bit through lost jobs and higher prices. Hence the expression "the poor get poorer" and the middle class pays the bills. Only some businesses go out of business as others adjust to the rising cost of doing business by merging and/or going off shore to produce cheaper. In all cases it means lost jobs and higher prices. When you're out of work it's a recession....when I'm out of work it's a depression. Words can't describe the terrible effect being out of work when you're middle aged or higher. The chance of getting work somewhere else is next to none. Nobody wants to hire "old people". That's why it's a depression to those older people when it happens to them regardless of whether or not the government just calls it a recession.

Stop thinking that increases in things cause inflation. Increases in things are the result of inflation. Simply put with all things considered...the increase in the money supply minus the growth in the economy equals the true inflation rate. If the money supply grows at 12% and the economy grows at 5% then the real inflation rate is the difference which in this example is 12-5 = 7%. Just follow total money supply growth and growth in the economy and subtract one from the other to see where we stand. When the figures don't show the true inflation rate like they haven't for the last 5 years then government conspiracy is manipulating the business system. In the end though it won't matter...inflation will bring us down.

“The value of money is determined by dividing the number of "things" available by the total amount of money available.”

Stan:

That is exactly what bankers and economists are saying. It took me some time to grab the essence of this statement and it is purely theoretical and used by bankers against government to issue money.

The explanation of this is very simple:

The moment someone says we need more money to do trade; bankers and economists are using this purely theoretical inflation formula to scare public and that is why they get away with so call tight budget that is causing recession, endless bankruptcies and homes foreclosure. Remember we do not know how many things are available and total amount of money available. Bankers pretend to know and use it to their advantage.

Artificial (oil) or real (food) scarcity of raw product is causing prices increase and hit the hardest those on fixed income like pensioners and welfare recipients.

Best regards, Stan

what is the cause of the inflation is saudi arabia? what are the effects?

"...Manufacturing money out of thin air eventually puts more money in the ordinary person's pocket yet this endless production of extra paper money...done by the central banks, does not require any extra effort on behalf of the worker so he ends up with more money in his pocket to buy "things" at no extra cost to him. That sounds nice but with more money to buy things, the money becomes worth less and to compensate..."

Manufacturing money out of thin air...is the only way to do it because money is abstraction like number. The major problem with money is who should issue it! *Not* any bank or any government but the buyer who is also the seller of goods or service. Inflation is only caused by the growing cost of raw materials caused by growing interest to borrow money. The increasing amount of money on the market does not cause inflation!

Make no mistake....There is only one cause of inflation and everything else happens as a result of that one major cause. In other words, everything else that happens becomes inflationary but not the cause of inflation. Rising prices are inflationary for sure but not the cause of inflation. Only the manufacture of more money than the total available yesterday causes inflation. Rising prices are a reaction to this extra money in the system. Manufacturing money out of thin air eventually puts more money in the ordinary person's pocket yet this endless production of extra paper money...done by the central banks, does not require any extra effort on behalf of the worker so he ends up with more money in his pocket to buy "things" at no extra cost to him. That sounds nice but with more money to buy things, the money becomes worth less and to compensate.... the "things" go up in price or else they would become cheaper for no real reason. The value of money is determined by dividing the number of "things" available by the total amount of money available. As the amount of money available increases, the value of "things" would go down if the system did not compensate by putting the value of those "things" up....hence an inflationary reaction to the extra amount of money available. This is not a complicated operation but rather hard to explain when money and the value of money are talked about. The value of money is different than the total amount of money available. The value of money rises or falls with the total amount of money available. If the central bank manufactures, out of thin air, more money than yesterday's total, then the value of money would go down...which would be seen as prices of "things" going up to compensate for the extra amount of money available.

For example...a country's assets equal $20 and the total amount of money available is $10. This would mean that each dollar is worth 2 units of assets and that represents the value of the dollar. Now the central bank makes another $10 out of thin air and now the total value of money equals $20 and if the value of the assets stayed at $20 then the value of each dollar would equal only 1 unit of the assets....a decline of 50% and a huge loss in purchasing power for the dollar. To bring these "things" back in balance, the value of the hard assets would need to double in price to $40 so that the value of money would equal what it did before the increase in the money amount available. I trust everyone hasn't fallen asleep trying to figure out what's happening. The hard asset rises in value to keep the balance intact. Said another way...it takes double amount of money to buy the same thing as before so the value of money is 1/2 what it use to be. That's inflation and the increased value of the hard asset is the inflationary result of that inflation.

Inflation can be caused by federal taxes put on consumer products such as cigarettes or fuel. As the taxes rise, suppliers often pass on the burden to the consumer; the catch, however, is that once prices have increased, they rarely go back, even if the taxes are later reduced. So what can be done about this and what will the disadvantages of such a step be?