A lot of people are talking about inflationary concerns recently as the government has pumped the economy full of cash, devaluing various things, I wanted to give some in-depth details about what is and isn't going on.

Inflation refers to the concept wherein the purchasing power of money decreases.

Purchasing power can be mathematically identified to be the total value of all goods and services in an economy divided by the amount of currency units in an economy.

For inflation to occur, the value of all goods and services must decrease, meaning either less goods and services exist on the market, this can occur from massive supply shocks; Alternatively the amount of currency in the economy increases.

Thus, we can say there is two types of inflation: Supply-Side Inflation and Demand-Side Inflation. Supply-Side Inflation is where less goods and services are supplied and Demand-Side Inflation occurs when more money exists operating in the economy.

When I describe the economy, I am only talking about the moving economy, this means that money and goods/services that are up for sale or not being saved. The larger economy or the unmoving variant, describes all goods and services and all money ever printed. It is important to note that if there exists 100 trillion dollars just sitting in an account somewhere, that is not causing inflation.

Now what is this thing called hyperinflation? Hyperinflation is a scenario, wherein the government or banks have no choice but to dump more and more currency units into the moving economy or suppliers must supply less and less goods and services. An example is the Weimar Republic wherein, German money was being considered less and less valued and the Weimar republic to pay off war debts had to print more and more money to trade for foreign currency as their currency was considered weaker and weaker, which led into a scenario in which money was printed as fast it could be.

One thing to note is that higher inflation expectations can cause inflation as people believing that their purchasing power is going to be less unless they spend right now are going to go crazy trying to spend, which can drive money out of savings accounts and into the moving economy, which can further drive up inflation.

What is the economic effects of inflation? As the prices of goods and services tend to adjust to inflation on a delay, in the short-term, it can make goods and services more expensive economy-wide to compensate, which in turn drives inflation even higher. In long-term, once the moving economy adjusts, it acts like a tax on people's savings, meaning that people lose their savings. Inflation also gets rid of fixed-rate debts real fast. In a sense, Inflation can act as an economic "reset" button for everyone who does not own assets and relies on money.

During Weimar, the Jewish class who owned assets and typically worked with money or alternatively lived on farms benefitted due to certain behaviors. Typically those who are rich or own productive land are insulated from inflation, though they might suffer from other assets.

The ones who suffer the most are those who save money, typically the poor and working class who are trying to own assets and get productive land. However, debtors amongst the poor are much gleeful to have their debts reduced to nothing.

Now let's talk about Deflation.

Deflation is the opposite of inflation, wherein purchasing power increases. Either on the supply-side wherein more goods and services are supplied or less currency units exist in the economy.

Deflation is the default state of the economy without government intervention, wherein prices fall as more goods and services are provided by the free market trying to beat out competitors. The economy tends to gear itself towards providing more goods and services, so if currency units stay the same, then you would experience your currency units increase in purchasing power terms.

Deflation can also be caused by people taking out and saving their currency and taking it out of the economy. Or the government spending less than they take in revenue and keeping the money in the treasury.

Just as there is hyperinflation, so too exists hyperdeflation, wherein the government or banks have no choice, but to take as much money as they can out of the economy or suppliers have to supply more and more of a certain good or service to extreme degrees. Hyperdeflation is almost entirely theoretical and the only place where it is thought to happen is in the bitcoin currency market, wherein fears of global hyperinflation is causing banks and governments to have no choice but to save with bitcoin.

Deflation tends to help the poor and working class, as effectively their wages go up without needing raises and their savings also go up without them doing anything. Economists who I don't respect criticize this by saying that they won't buy any goods and services, because if they just wait it will be cheaper and I say to that, if it is lunch-time, I will have buy a hotdog. Who does Deflation hurt? Deflation hurts debtors, as a massive portion of debt is corporate debt, it would hurt corporate interests and the stock market in general. It could also produce debt traps for some poor. It also hurts governments a lot as they have extreme amounts of debt and debt-producing liabilities.

The most successful economies of all time, however, existed under deflation, with some of the richest Americans of all time (adjusting for inflation). In this sense, Inflation tends to be moving money from the private sector into the public sector and deflation does the opposite.

Stable Prices or 0% inflation or deflation, is sometimes suggested as a trade-off, wherein the government adjusts tax rates and spending to get a stable inflation rate. Taxing more and spending less when the economy is inflating (removing currency units) or taxing less and spending more when the economy is deflating (increasing currency units). As things are by default in a deflationary state, the government can spend a certain % of GDP on stuff they want with very little economic damage. The issue with Stable Price however, is government debt, which is why it never came around and the government has the federal reserve target 2% inflation, despite the original federal reserve calling for 0% inflation. In 0% inflation, your money retains value and the government takes no sides between debtors and savers. Also, it is important to note that governments cannot go to war without war debt. It would be too expensive to finance, unless they plundered or promised to conquer the lands and divide it up amongst those financing the wars.

Last Term: Reflation. Reflation is a stupid term made by stupid people, as it is just inflation with another name. Some people measure inflation by comparing it to other currencies. That is a mistake, reflation is just inflation without considering measuring inflation compared to other currencies but rather to goods and services.

Why haven't we seen inflation? Because of the uncertainty of the pandemic, many people have taken their money out of the moving economy and put it into savings. What looks to be a stock market bubble combined with an inflationary crisis has made a lot of assets really uncertain, however, if you wish to know where inflation seems to be driving, consider the housing market, where rates across the country have sky-rocketed to New-York levels, while this has been mostly blamed on increased pandemic demand, it is being propelled even higher by inflation. The simple truth is that inflation and deflation can affect different parts of the economy differently depending on where the money is being allocated. In this case, it looks to be into the stock market and into property. This is why people believe that it is a good time to get into precious metals as they historically maintain their value through inflation and deflation, and they haven't been the main target of a demand spike, though there has been a bit here and there. It is also a market wherein a large portion of stock is allocated.