You, me and John are the only people in the country. You have chicken, I have wheat and John has pigs. One day we realize of something. I want meat, you want wheat, I don’t want chickens nor eggs but John wants eggs.
So in order to get what we want we gotta go to the third one and wait that he wants to sell to us, so basically it’s a mess. Finally we decide: Let’s make a clear value for the chicken, the wheat and the pigs. The chicken’s value is a piece of paper, a pig is 3 pieces of paper and a bag of wheat is half paper. Now we have money.
But how we do to give a real value to it? Very simple, we count how many pigs, how many chickens and how many bags of wheat we have and we make only as much pieces of paper and not more.
What happens now is that you can buy whatever you want because you are not giving the chicken on exchange but the potential to buy a chicken. But what happens if John thinks he is too poor and he has the great idea of printing more money, can he buy more chicken and wheat?
Let’s see, John prints more paper and buys and buys. But when we go to buy to him he asks more money for the pigs because he already knows that there is more money than pigs so our paper loses value and as a consequence we make chicken and wheat more expensive too. Everything became more expensive. In reality did someone became more rich? No, all that happens is that John scams us a bit until we realize and our echonomy get’s regulated by the mechanism of inflation.
If you introduce a currency without having something to cover it with you are not generating value, you are generating inflation and inflation weakens the echonomy because in the world there are not only 3 people, there are many countries and if these countries notice that your currency gets weaker they lose trust on your market and they wont want to invest in your country, so your country becomes more poor. Because of that it’s very important that the money be a realistic reflection of what a country has and produces.
Maybe we should reflect on how and why have currencies like the GBP, the CHF, the EUR, the USD, the CNY and even the BTC keep increasing every time the market goes down globally. It soun’s like a benefit of the bad situation but opposite to try to imply that some be making unethical things to get benefited by people’s bad situations I’d like to point that there are more than 2 kinds of people in the world, but to understand the difference between the 1% compared to the 90% (notice the 9% difference) is that there are some people who came to the world to cry, and there are some who came to the world to sell handkerchiefs. (Which, depending on how, when, why, to whom are they doing it doesn’t necesarilly means it’s unethical or that they are taking advantage of the situation.)
Usually, to have a constant income it’s a sign that you are adding value to others, it be done in a good or a bad way, with good or wrong intentions. So, what do you think the other 9% is doing and on which percentage are you?