An easy, simple explanation for friends who still don't get that government, in collusion with banks, are the only ones who give us high inflation. Explanation:
âWhy Inflation Really Happensâ
Banks create money out of thin air.
Most people think banks only lend out what you or I deposit. Not true. When a bank gives a loan, it just adds numbers to an accountâthey literally create new money.
Government adds more money too.
When the government spends, gives grants, guarantees loans, or hands out stimulus checks, itâs not just moving money aroundâitâs putting more money into the economy.
More money chasing the same stuff = higher prices.
When people suddenly have more money but the supply of houses, food, and fuel doesnât grow as fast, sellers raise their prices. Thatâs inflation.
Early recipients benefit most.
Banks, big investors, and government contractors get the new money first and can spend it before prices rise. By the time it reaches everyone else, prices are already higher, leaving ordinary people worse off.
Interest rates are the economyâs âcool down.â
Raising interest rates doesnât just make banks richerâit slows borrowing, reduces new money creation, and helps slow inflation.
The system depends on borrowing.
All the existing loans plus their interest need new money to be paid off. Thatâs why governments and banks keep encouraging borrowing and spending.
The real fix?
Honest, sound money that canât be created out of thin air prevents this cycle. Bitcoin is the first ever example of money that works this way.
Mini version:
Most people think banks only lend out deposits, but they actually create new money whenever they give a loan. Governments do the same thing when they spend, hand out stimulus, or guarantee loans. More money chasing the same houses, food, and fuel drives prices upâthatâs inflation. The first people to get the new money (banks, investors, contractors) benefit before prices rise, leaving ordinary people worse off. Interest rates arenât just for bank profitsâtheyâre the tool to slow borrowing and cool inflation. The system depends on ongoing borrowing, which is why banks and governments keep encouraging it. The fix? Sound money that canât be printed into infinity, like Bitcoin.
