Most of us perceive inflation in many different ways. Commerce graduates are taught in universities to look at the Consumer Price Index (CPI) to determine the inflation or deflation of price for average goods. Normal citizens like us would normally gauge inflation on a daily basis through buying daily needs. However, the plain simple truth is that all these methods are delusional, incorrect and biased.

I once got into a heated debate about inflation with a person who knows zero about inflation and was telling me this, “I got a better computer system with my $1000 today than two years ago, now that’s fighting inflation”. If this is how you interpret inflation, reading this article will definitely be a treat to you.

Paper Money

Let’s talk a bit on our paper money since it is important to get to know our little paper friends if we really want to understand inflation.

I believe that at least 60% of the world’s populations are still presently uninformed that the paper currency they are holding now is not real money. Our paper money (credit in electronic form) is a Legal Tender*, meaning they are only worth something as long as the government says so.

Also, as we all know, counterfeiting money is a crime and you go to jail for printing money. However, the process of creating more paper money is nothing but a legal counterfeiting of money. To illustrate on that, new paper money is printed by a printing machine and new credit are just numbers added into the computer. This can be done legally by a Central Bank, and most countries have a Central Bank.

Now do you realize how disastrous this would mean to you and me when somebody can print money out of thin air? To answer this question, let’s find out how new money gets their share of “value”. A metaphor for this would be the number of children in a family. If you are the only child in the family, I’m sure you receive all the attention and are “worth” more. However if you’re from an old school Asian family that has ten or more children, you receive less attention and is “worth” less.

I know, bad example, but as you can see, new money seeps value from our current money and debase all the currency as a whole. This results in wealth being transferred away from our savings and investments to the people receiving the newly printed money.

My Definition of Inflation

So my simple definition of inflation would be nothing but the expansion of monetary supply that causes the debasement of our money and thus reducing our overall purchasing power.

The reason I said that relying on the Consumer Price Index (CPI) is delusional and incorrect is because the main problem is not the increased price of goods. The main problem is the increase in money supply without the increase in economy output. This causes inflation and companies have to jack up their prices to survive the inflation.

The mainstream media blames price inflation on greedy companies, which is untrue for most companies. The media is the perfect propaganda tool being used by the government to spread their “fairy tales” to vulnerable and uninformed people like us. I strongly suggest you to think twice before believing anything on the TV or radio.

Legal Tender – Something offered as a payment legalized by the government

Long before money (silver and gold coins) was invented, the barter system was used by traders to exchange goods. Since the first gold coin was forged from its cast, money has been appreciated by many, for it is light and easy to carry. As time passed by, appreciation towards the invention of money has been clouded by greed and this eventually leads to Credit Crunch.

However, as I was surfing the internet the other day, I stumbled onto a very inspiring and eye-opening video, the “One Red Paper Clip” video on YouTube.

This is a story of a young man who bartered all the way from a tiny red paper clip to a house.

Needless to say, if an average Joe can trade all the way from one small paper clip to a house, I am pretty sure there are  millions of people who are struggling financially in this rough financial thunderstorm can barter their way out of debt as well.

On top of the video, I have also discovered that Robert Kiyosaki, a financial guru had organized a 3-day-course called “Art of a Deal” a week ago where participants did nothing but traded goods with each another without money.

This had me wondering if it is possible to survive or even achieve financial success during this financial meltdown through bartering?

It is quite certain that barter system will not replace the money system we have now considering how deep the mess we are in. But is it possible that bartering is the new way of achieving financial freedom? Has the buying and selling behaviour reverted and does it still take money to make money?

You tell me.

“If I have a million dollars, I will …” is a sentence that everybody can complete. However, only 10% of the population’s can actually achieve it and less than a handful goes beyond the millions.

I still remember exactly 6 years ago, one of my respective teachers talked about his dream of getting a million dollars. He was about 40 years old and he said, “If I have a million dollars now, I will retire, put the million into my bank’s savings account and siphon the yearly interest until I die”. He said the interest from the million is more than enough for him to live a simple life.

What he said made perfect sense to me while I was still a kid and it probably makes sense to some of you in the present too.

Nevertheless, if my teacher were to get his one million dollars 6 years ago, the million would worth significantly less (even with the interest) than 1 million due to inflation. Not to mention he still has government tax to pay, monthly expenditures, holiday trips, children’s education and random doodads to spend on.

The value of the million will decline over the years  and I’m not entirely convinced that he could buy his own coffin with the million he owned.

Look, I’m not here to mock my teacher’s financial knowledge and I’m definitely not here to teach you how to spend your million dollars. I wrote this article to raise the awareness of the constant decrease in buying power with our currency.

You may have noticed that price of goods have been increasing steadily over the years and packaging of goods have shrank while the price remains unchanged. Our salary on the other hand had not moved a bit. All these are signs of our currency declining in value.

So why would the currency decline in value?

It would take pages to explain why, but to keep this article simple and easy to understand, it is because the governments are printing money out of thin air. That is how our million shrank in value if it is kept static in the bank.

But banks offer high interest rates!

Well that’s spot on! But you’re not told the next few points. Your savings account’s interest rates are never higher than the inflation rate and that the interest on your capital is also taxed like a normal employee.

You see, bad advice comes almost from every corner of our society, even from your education institute. Here is another, “You won’t lose a penny if you save your money in the bank”. Of course you wouldn’t lose a penny, the 1 million you saved in the bank 6 years ago will always remain 1 million (or more), and it is the behind-the-scene stuff like inflation that is seeping the value of the 1 million away.

However, with proper education and planning, you can turn a million dollars into a few millions or even billions if you’re that lucky.

So, if I have a million dollars, I will definitely not save it in the bank. This does not mean that I should go on a spending spree too.