Ep.30 Understanding Inflation

In this episode of Programming Lions, we break down inflation.  Join us as we discuss a brief history, causes, who benefits, and some fun board game examples; on the way to better grasping the concepts and potential shifts we might make to curb inflation.

YouTube: https://youtu.be/3MXKWmaejc4

00:00 Intro

01:01 History & Definitions

03:45 Causes

04:44 Who it Hurts & Helps

06:15 Monopoly Lessons

08:41 Max’ Monopoly Hacks

10:32 Current Direction

13:20 Summary

Transcript

0:00

And we're back with another episode of the Programming Lions podcast. Today, we are going to talk about inflation, a very current and relevant topic. We're going to cover what is inflation, the history of it, what causes it, what relieves it, who benefits, who does it hurt. We'll run through some simple examples. And then finally, we're going to talk a little bit about government programs and where do we go from here. So let's get right into it. Inflation. Boys, this is a hot topic, literally on fire, a dumpster fire perhaps, but let's get into it. Let's start by defining inflation. So inflation is basically just making prices higher. Okay. That's short and simple. That is. Prices go up. Yeah. That's it. Now let's get into something that's a little bit more complicated, which is the history of inflation. Will you do some research on this? Yeah, it's where it mainly started in like world, like in the world wars, specifically in the world, like World War I. Where we gave money to Germany and Britain and France, and after those wars they couldn't necessarily pay us back. That was the very beginning of debt, so then prices had to go up because we needed to pay off that debt. I'll give a little bit of history over the trends in inflation, which has largely been kept in a range of 1 to 13 percent since 1960. And the Federal Reserve, which has the power to print money and kind of manages the monetary policy and supply, they have a target. Inflation rate of 2 percent that's where they think the sweet spot is in terms of giving people the opportunity to Grow their assets, but also not getting things too expensive and then largely inflation rates have been pretty stable all the way up until COVID where we had, huge influx of money into the system that spiked inflation. But it's also Perhaps worth noting that inflation has a couple of definitions, yeah, there's like inflation with the currency where they print more money And then they and then the prices would go up because everyone had more money and there's also the inflation where there's a desire for a certain good like a certain thing from a store or whatever And then, since, they're making more money because more people want it, they raise their prices up. That's right. Based on the demand for the good or service, the price of that good or service can go up, because more people want it, and they're willing to pay more for it, right? So that makes sense. What we're talking about today is more currency related in terms of inflation. And the way that inflation is measured as a government statistic is broad index of a bunch of different prices. So some groceries, some gas, oil, goods, services, and different things, and then they blend all that together and they've come up with this statistic around inflation, how much it goes up. And at any given time, one thing. Let's say groceries might be going up at a higher pace than gasoline or oil. But ultimately that blended statistic is what we hear about in the news in terms of the inflation rate. Okay. That makes sense. So this is a good segue. Now we can talk about what causes inflation. What causes inflation is the government printing money. Okay. That's one big thing. And then there's also where just more money in the system, causes inflation. Okay, that's exactly right. And then who can put money in the system? The government. The government, okay. And why do they put more money in the system? Because they're in debt, and debtors love inflation. Okay. That's exactly right. So that's what causes it. What do you think could relieve inflation? I don't know much about it, but there's something where they can Take money and destroy it, basically they're issuing less in bonds than what are maturing and so They're not Taking on as much debt and they're taking money out of the system through that Yeah, so that so they basically do the opposite of printing money. Alright, so we've talked about what causes it, what relieves it, then let's spend a minute on who benefits from inflation, and who does it hurt? It hurts the citizens, and it helps the debtors, and here's like a situation where also if you own a lot of stuff, like if Will owns a mansion, then he I just, if he owns a mansion, then he's mansion price goes up, so then if he sells or does something like that, he gets a lot more money, and and all of that. And then, if you don't own anything, then you don't get any money. So then, that's, yeah, so people have a lot of stuff. Basically, people who are, Like, who have assets can get more money than people who have no assets. Yeah. Interesting. Yeah. Guys, I'm impressed, that's exactly right. All these people in the economy are doing well that own assets and then people that don't own assets Everything's getting more expensive. It's actually very destructive for the class system in a country to have prolonged inflation So at any rate, inflation crushes. And puts a bigger divide between the people in the country who are poor and wealthier. Does that make sense? Yes. And that's not good for a society. Let's go through a couple of examples it is a complicated matter to understand but in our experience most people have played Monopoly, right? Monopoly is a great game It's like you can play with the family. Let's break down a few things that happen in Monopoly Money grab tell me about money grab max money grab. You pull a card and it says money grab. It's where you grab all the hundred dollar bills in the bank. Then you throw it up and whoever gets it keeps that money. Yeah. And then you can use that to buy homes and hotels. Wow, so it's literally taking all the hundred dollar bills out of the bank. Yeah. Throwing them up in the air, and all the players catch them, and then however many you catch, you keep. Okay, so that is literally inflation. That's just putting money into the system without taking any goods or services out of it, right? Yeah. Okay, that's a great example, Max. And then, before we get into some other examples, tell me then, what immediately happens after the money grab? And, let's just say you've grabbed hundreds of dollars, and you got some properties, and you go back to the game, and it's your turn, what do you do? You add homes and hotels, and then you, and then people land on your properties and they give you a thousand and two hundred bucks. Right. Yeah, every single house or hotel goes up more money. Right, so when you got the money from the money grab, you bought a house or houses and added to your property rent, and then when somebody lands on it, you get paid more. Yeah. That's inflation. Yeah. Yeah. And, what happens to that person that went to the money grab, but didn't have any homes or property yet, or matching properties, what happens to them typically after the money grab? Yeah, if they got no money, then they're doomed. They're doomed. Yeah. Okay. Yes, they're doomed. So that reflects what we just talked about in terms of people that have assets Invest more money into their assets rent goes up and then people that don't have assets get crushed. The other thing interesting about Monopoly is there's a baked in rate of inflation. That's actually pretty high How much money do you get when you start the game of Monopoly about 2, 000 in total. Okay, and then every time you go around the board, how much do you get? 200 each time you pass the starting area. Okay, and you had 2, 000, so you could say, it's an inflation rate of about 10%. It simulates things pretty well. Now I want to talk a little bit about Monopoly strategy because there's somebody in this family that is pretty good at Monopoly. Max, why are you grinning? Because it's me. And what is your strategy, Max? I want you to tell the people what your Monopoly strategy is. Because in, in an inflationary period of an economy, what you do in Monopoly also works for people in the economy. First of all, it's just to win, but otherwise it's I start with 2, 000, right? So I start off and I buy every property that I land on until I'm bankrupt basically. And then, People start landing on my like properties, and then I use that to put properties on my like on the ones that get the most visitors, so then I put them on those and then I keep getting money and Yeah And then eventually you crush all your enemies In fact, sometimes you even take mercy on me. You're like, oh, dad, I just want you to keep playing so I can crush you so you don't have to pay me this time around. Max, what you do is basically have no money on hand. You spend all your money all the time, right? You rarely have cash on hand. Yeah. In fact, I've been in situations where we're playing and you land on my property and you don't have cash to pay me. And then you go and you sell a house just to pay me but you don't do it until you have to. Yeah. So that strategy of basically being cashless or in debt has worked very well in the real world, too. I don't know that I'd advise it forever because you need inflationary periods to make that work. Max, I applaud you for your Monopoly strategy, but when you get into the real world, I do want you to be careful everything in moderation.. Now that we've covered Monopoly, let's compare this to everything we've learned today in terms of the government policies that we currently have and if those are going to continue to hurt, meaning rise inflation, or if they're going to help inflation. Based on what you know about some of the government policies, what do you think? I think it's gonna rise. Yeah, definitely. Okay. Why is that? Because we're in debt. What?$35 trillion And debtors love inflation. Yes. Yes, again debtors love inflation the government needs inflation because they are spending So much. The majority of our budget is spent paying the interest on our debt. The government is 35 trillion in debt and They want a level of inflation so that the debt that they're taking on is cheaper to pay off in future dollars and tax revenue It makes sense for the government to want some inflation. Meanwhile, they're having trouble curbing their spending. And as you said, the continued reliance on debt to get by will most likely continue pushing inflation. There's a few things that they can do, which is raising interest rates, which they've already done. And seem pretty apprehensive to raise further because that has other effects in the economy, slowing down the economy, perhaps slowing down investment, slowing down things like jobs. So usually unemployment goes up a bit when interest rates go up. So there's a lot of factors that they're trying to protect, but they're also not seeming to slow down in terms of spending, right? We've got huge, massive bills to send hundreds of billions of dollars around the world for Aid and support and not saying that, these aren't good causes but Puts us into more of a pickle in terms of where we're at with our debt So we're essentially borrowing money to send it to other countries This would be like me going to the bank and taking a loan so that I can give that money to a buddy That's very and that's what we're doing given the rate at which we're doing that It'll be interesting to see how we deal with inflationary pressures. Republicans and Democrats alike They have both contributed greatly to inflation, Trump put trillions of dollars into the economy during the pandemic and Biden continued that and so all of these politicians essentially aren't willing to make the tough decisions to balance a budget, for example and curb inflation that they're addicted to spending other people's money. And that's gonna be a problem Yeah, it's not very good. It's a tricky problem to solve there are a few things we can do in terms of making sure that we vote in people that, are willing to, yeah, or they're willing to make tough decisions and there are politicians out there that are willing to do that on both sides of the aisle and those are the kinds of people that we need in our states and in Washington having good productive dialogue around what we do and how we spend. And trying to be responsible about balancing our budgets so that we can keep our society moving forward at a reasonable clip. Okay. This was an interesting and a bit of a heavy topic for a couple of young lads. So I appreciate you guys hanging in there doing a bit of research. Hopefully you came out of this understanding more about inflation than we did going in. We are by no means experts, but we're slightly dangerous on the topic. Now, wouldn't you say? If you enjoyed this content, please subscribe, like, comment, share. It really makes a difference for us. Thank you until next time.