I don't want to get too off topic with this inflation stuff...
If we understand that money is a storage of value. We can exchange money for goods and services because we can agree on exactly how much goods and services a quantity of money will purchase. We often fall into the trap of thinking a good or service is worth a quantity of money and forget that we should be defining the value of money in terms of its goods and services equivalent.
Here's the catch. Because we think the money itself has value, we're fooled into putting a price on it: The interest (rent) rate. Inflation, and deflation is the result of inappropriate pricing.
A secondary challenge comes from trying to use money to store value between transactions. Because we need to do this, we must have a supply of money available for this purpose. Again, too much money, leads to inflation: Too little; deflation.
The real problem is that there is a time lag between increasing the supply of money and the market realizing the supply was increased. During this period, the supplier (government) gets 'money for free'; hence the temptation is overwhelming. Here's the value of a strong watchdog, Greenspam, in U.S., looking after things. It keeps the politicians from raiding the treasury and destroying the economy, creating the appearance of prosperity to insure their own re-election.
I hope, by making my post brief, I haven't truncated so much that it becomes misleading. Anyway, the topic is complex and requires considerable effort to comprehend, but worth the effort.
Cheerios, PW.
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