Why is Inflation so High?

A Simple Version of What Happened & Why

Photo by Charles Forerunner on Unsplash

We’re headed for tough times.

All of us.

The world is looking at entering a global recession and no one likes to say the R-word, let alone live through it.

When the pandemic hit, we thought countries would collapse. We thought economies would collapse and we would have widespread famine.

We did. Some part of the world were hit harder than others. But, for the most part, central banks and governments around the world rallied around and put up a good fight to save economies.

What did Governments and Central Banks Do?

For one, the governments gave out stimulus packages and aid packages to people.

They even gave it out to people who didn’t need them and this is understandable because it’s not exactly easy to distinguish who is deserving and who is not, in such a short period of time.

These were emergency measures that had to be taken and so they were.

For another, the central banks fostered the an environment of low rates and bond buying to increase the liquidity in the system. Without going into the plumbing of the monetary system, let’s just say they tried to inject enough funds into the system to keep things flowing.

So, what happened during the pandemic?

Bubbles… and I don’t mean the pretty kind.

Asset bubbles and price bubbles.

By now most us know that the stock market has been soaring. But, so has the housing market and practically every other market.

The excess liquidity that was pumped into the system certainly made its way somewhere and the stock market was just one avenue.

People also stayed home and bought a lot of goods.

Staying home also did another thing. It slowed down the manufacturing process and created supply chain disruptions. That’s putting simply, of course.

And what’s the end result of all of this?

When you have people wanting more goods, and there’s not enough supply — you get rising…