Economic Wisdom to Apply in Your Twenties

Chapter 14

Chapter 2 Section 2 When Inflation Strikes
In Germany at the beginning of the 20th century, one night, a thief went to someone’s house to steal something. He saw a basket full of coins. He poured out the money and took the basket away.What this seemingly joke news revealed was the real situation in Germany at that time.

After the First World War, in order to pay the huge reparations after the war, the German government raised funds by issuing a large number of currencies.However, when the German government kept printing money day and night and issued banknotes to astronomical figures, the depreciation of the German currency also reached an almost unimaginable level, and prices were also pushed to astronomical figures.If you owned German bonds worth 1922 million in Germany in early 3, you were rich then.However, just two years later, so much money can't even buy a piece of rock candy.This was the most dramatic hyperinflation in the history of Germany after World War I.

Inflation is the relative depreciation of currency.Simply put, it means that money is worthless in the short term, and a certain amount of money can no longer buy the same amount of things.For example, in the past, 8 yuan could buy 1 catty of pork, but now it costs 13 yuan to buy 1 catty of pork.When you look around and the prices of everything are going up, then inflation is really happening.

Inflation can have a detrimental effect on people's lives because hard-earned money becomes less valuable - although when it's inflation people tend to earn more.Inflation has different situations, and different inflations have different impacts on people's lives and social economy:

1. Crawling inflation
This inflation rate is relatively stable, generally maintained at 2% to 3%.Some economists believe that when the price increase rate reaches 2.5%, it is called unconscious inflation, and if it is lower than 2.5%, it cannot be regarded as inflation.This kind of mild inflation will not cause social turmoil, on the contrary, it will be beneficial to the society, because the increase in prices can make the manufacturers more profits and stimulate the enthusiasm of the society to invest.Therefore, it has a "lubricating" effect on the development of social economy.

2. Rising inflation
Galloping inflation is also known as galloping inflation, sharp inflation.It is erratic, rapidly deteriorating, accelerating inflation.When this kind of inflation occurs, the inflation rate is relatively high (generally reaching more than double digits). When this kind of inflation occurs, people's confidence in the currency is shaken, and the economy and society are in turmoil, so this is a relatively dangerous currency. swell.

3. Hyperinflation
It's a very high rate of inflation, typically in the triple digits and out of control.As a result, social prices continued to rise rapidly, the currency depreciated sharply, and people completely lost confidence in the currency.At this time, the entire social and financial system is in chaos, and normal social and economic relations are destroyed, which will easily lead to social collapse and government collapse.This kind of inflation is rare in the history of economic development, and Germany after World War I is one of the examples.

4. Repressed Inflation
Inflation did not really happen because the government implemented a strict price control policy against the inflationary pressure existing in the social economy or the potential price rise crisis.When the government lets go, inflation occurs, so it is also called hidden inflation.

There are many reasons for inflation, and they are relatively complicated, such as rising price index, economic overheating, rising commodity prices, and political factors.For us ordinary people, there is no need to delve into the cause of it, the key is how to deal with it to reduce stress and loss.

From a macro point of view, there is nothing we can do to curb inflation. We mainly rely on the government to regulate and introduce relevant economic policies and measures, such as raising deposit and loan interest rates, raising the deposit reserve ratio of financial institutions, and implementing tight monetary policies, including restricting inflation. Price control orders, price gouging, etc. are strictly prohibited.But from a micro level, we can also take some measures to deal with inflation.

First, of course, is to work hard, make more money, and reduce expenses to reduce the pressure of inflation.

Second, various financial management tools can be used to offset the erosion of property by inflation, but it is necessary to consider the selection of investment and financial management tools for different degrees of inflation.

Wisdom Trivia: Inflation Explanation
1. Economists have found that when women wear shorter or very short skirts, the stock market is in a bull market or about to enter a bull market.The reason is that short skirts need to be matched with stockings, and stockings are more expensive, which requires men to have strong financial strength.Likewise, when women wear long or very long skirts, it means the stock market is in a bear market.

2. Economists have found that when there are fewer and slower sales of lipsticks in stores, the general economy will be in a stage of prosperity or about to be prosperous, that is, the incubation period of inflation.And when the lipsticks in the store are selling faster, the economy at this time is generally in a period of economic recession, or a period of recession, that is, a period of inflation.Financially strapped women cut back on other major spending items and turned to cheap cosmetics like lipstick to boost their confidence.

3. Menu cost.During inflation, restaurant prices change day by day, and it becomes more and more expensive for restaurants to print new menus, including the cost of making new lists and catalogs, the cost of sending new price lists to middlemen and customers, the cost of advertising new prices, It even includes the cost of dealing with customer complaints about the new prices.

(End of this chapter)