With money beginning to lose value, it's important to understand asset deflation and monetary inflation to understand how it can affect you in the investment world. Keep reading to learn more about inflation and deflation.
Although money production is going up, we haven't seen any inflation yet. In fact, we're currently seeing deflation. Why is this? Right now, money supply is on the rise. However, credit supply is rather low, meaning it's harder than average to get credit in the current economy.
The result of money supply in combination with credit supply results in either inflation or
deflation. Because the number we get from adding these two factors together is negative, we're currently experiencing deflation. However, it's probably temporary deflation because credit is beginning to come back to the market.
Supply and Demand
Jason Hartman teaches that the basic law of economics is supply and demand. What we're experiencing now is a lack of demand. Currently, demand has plummeted because Americans are finally beginning to put their money into savings, as they
should have been doing to begin with. Because the economy is fueled by supply and demand, the governm
ent is rather unhappy about this. If there's no demand, companies have to respond accordingly.
While demand is declining, companies are responding by decreasing production. In the process of decreasing production, they're closing plants, closing supply channels, and laying off their employees. In response to this, the government uses fiscal policy to adjust its levels of spending to influence the economy. As Jason Hartman says, they're trying to inflate the bubble. To accomplish this, the government will create money and spend it on a variety of things.
We may also see monetary policy, which can be defined as
regulation of money supply by the Federal Reserve Board to control inflation and stabilize currency in the US. Money supply is increasing quite a bit due to government promises and debt, but this money is being created out of nowhere. Eventually the money will start trickling down from the banks into Wall Street. Once it starts trickling into the economy, we'll begin to see inflation.
Inflation is a good opportunity for income property investment. As monetary inflation occurs, real estate investors can use it to pay off their mortgages on income properties. Use this to your advantage to protect and create future wealth. (Top Image: Flickr | Peretzp)
The Young Wealth Team