Video: Inflation Explained

Here is Omid Malekan back with a video explaining inflation to the layman.  You have seen his videos on Bank Bailouts Explained and Quantitative Easing Explained. The QE explained video was especially popular and went viral on the Internet. So now we have his explanation of inflation.

I think the video does a pretty good job of explaining inflation. The one criticism I would make is that it doesn’t mention how the Fed’s adding more liquidity doesn’t actually mean that liquidity gets into people’s hands. QE is not a helicopter drop. The liquidity goes to banks and much of that money sits as excess liquidity on bank balance sheets. Much of it goes into Treasuries. Some of it goes to speculating. Even more money is pushed into other markets due to zero interest rates and the Fed’s dominant bid on Treasuries.

This is how it works:

Every single time the U.S. is met with an economic downturn (is met by the figurative Grim Reaper), the policy response is always the same: monetary easing (more cowbell). And with interest rates as low as they can go, the Fed has turned to printing money and monetizing debt. This excess liquidity is an economic hazard washing up on the shores of South Korea, Brazil and India, causing policy makers there to consider barriers to reduce the floods from the incoming waves of U.S. money. The excess liquidity is pumping up commodity prices, raising the price of gasoline and food for average American citizens and reducing their purchasing power.

(Don’t Fear) The Reaper, The Fed Says ‘More Cowbell’

Just because the Fed has a fever and the only cure is more cowbell doesn’t mean the banks want to lend these cowbells on to consumers or that consumers want any more cowbell. Meanwhile the Fed continues to deny it has any impact on commodity prices while taking credit for the rise in stock prices. This is simply not credible. That’s why investors will continue to flee into gold and commodities as a hedge against inflation. As for poor people and retirees living off annuities and fixed income, let them eat iPads.


Edward Harrison is the founder of Credit Writedowns and a former career diplomat, investment banker and technology executive with over twenty years of business experience. He is also a regular economic and financial commentator on BBC World News, CNBC Television, Business News Network, CBC, Fox Television and RT Television. He speaks six languages and reads another five, skills he uses to provide a more global perspective. Edward holds an MBA in Finance from Columbia University and a BA in Economics from Dartmouth College. Edward also writes a premium financial newsletter. Sign up here for a free trial.