"It may sound like I'm nitpicking," he said to Dave, "but I'm not. Inflation isn't so much that prices go up—because that would imply that groceries and stuff like that have somehow become more valuable. Inflation is when money becomes less valuable so it takes more money to buy a sack of potatoes, a gallon of gas, or hire a babysitter. It's a distinction most people don't seem to get.
"In fact, in cases where commodities become more valuable, it's usually a case of supply and demand. When there's increased demand for something, or the supply of something we typically use runs short, the price of it goes up. For example, if a bad winter wipes out much of the citrus crop, oranges become more expensive that year. When the crop returns to normal, the next year, the price of oranges returns to where it usually is.
"Inflation, on the other hand, is an increase in the money supply that exceeds the expansion of the goods and services available to buy."
"That sentence sounds like a mouthful," I said. "Give me an example I can actually understand."
Let's listen in on a discussion about inflation and money which may make the economic problems created by the Fed and our politicians easier to understand.
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