Have you noticed lately it takes more dollar bills to by the same stuff? Let's see, didn't you used to be able to get a gallon of gas for $1.50? Now it cost about $4.00. What do you think changed? Was it the gallon of gas or the dollar bill?
Last I checked a gallon is still a gallon. That measurement seems to be constant. So, it must be the dollar bill is losing buying power! How does this happen? Our government likes to spend more money than it brings in, so they "inflate." That means they create more dollar bills out of thin air.
The printing of new U.S. dollars, devalues ALL the U.S. Dollars. (This includes every U.S. Dollar in your savings account, checking account, CD's and any in your wallet.) This explains INFLATION!
If you don't quite understand lets say you have a pie. I cut it in 4 pieces. I get another pie and cut it into 40,000 pieces. Each pie is the same size, but are ALL the pieces the same size?! NO!!!! The pie only cut in 4 pieces each piece is much larger than the pie cut into 40,000 pieces. To get the same amount of pie you would have to get 10,000 pieces of the pie cut in 40,000 pieces to equal just one piece of the pie cut in 4 pieces. (Now, think of the pie as total dollars in circulation.) I hope this helped.
There is a very good article, I highly recommend you read. It is entitled, "Barclays Warns of a Financial Storm as Federal Reserve's Credibility Crumbles." This article was posted 6/27/08. A quote from the article, "Barclays Capital has advised clients to batten down the hatches for a worldwide financial storm, warning that the US Federal Reserve has allowed the inflation genie out of the bottle and let its credibility fall "below zero"." To read the whole article:
http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2008/06/27/cnbarclays127.xml&CMP=ILC-mostviewedbox
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