Wednesday, July 1, 2009

Inflation good or bad?

Slow down in economy is no good. Agreed. No doubt over that, Is low or negative inflation bad? At the peak of the current economic crisis inflation is near zero. If you are wondering what inflation is, here is the definition from wiki, In economics, inflation is a rise in the general level of prices of goods and services in an economy over a period of time. So, it means value of money has increased. So, we can buy two chocolates instead of one at the same cost. But, Why governments see low inflation as bad?

Governments have borrowed lots & lots of money to improve and induce development in the country. Also have wasted money in military expenditures. How will they pay it back? Ofcourse they can print all those money. What will happen if they do so? Money loses its value and its called inflation!!

So, in an monetary system based on debt inflation is unavoidable. And money will lose its value over time. What it means, don't save money but save real assets like gold. Gold or silver value remains unchnaged its the money which had losen its value. And its the same reason investment is an must in our monetary system.