There are two components to the inflation story: the cycle of bank credit, which left to itself is self-cancelling, and the longer-term erosion of currency values. In examining the causes, this article goes back to monetary basics to explain what is required to make a currency’s purchasing power stable. Economists generally seem unaware of the importance of credit in the economy. In a world of fiat currencies, they wrongly take central bank currency to be money, and also routinely describe bank credit as money. But they are credit, which drives everything, not only statistically recorded credit, but in our personal relationships as well.
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