The Fear of Missing Out: Understanding Inflation and Modern Monetary Systems
The KOSPI index has once again surpassed the 4000 mark after a brief pause. In Seoul, the rise in apartment prices continues unabated. Those without homes or stocks are beginning to feel anxious, fearing they may become sudden impoverished individuals. This anxiety is a clear sign of the FOMO (fear of missing out) syndrome. Despite working hard and living frugally on a monthly salary, many are left questioning what went wrong. The answer lies in the modern monetary system, which inevitably accompanies inflation, and government policies that slyly strip away your wealth.
### Why Simply Breathing Can Lead to Poverty
Inflation refers to the general and sustained increase in prices. When prices rise, it is equivalent to a decrease in the value of money. The decline in moneys value occurs because the amount of money in circulation continues to increase. So, one might wonder: cant we just stop increasing the money supply? Unfortunately, that is where the problem lies.
In a modern monetary economy, the mechanism of money expansion operates as follows: Suppose Mr. Kim borrows 1 million won from Bank A and deposits that amount into a savings account at the same bank. Assuming a reserve requirement of 10%, Bank A retains 100,000 won and lends out the remaining 900,000 won to Mr. Lee. Mr. Lee then deposits this 900,000 won into Bank B. Bank B, keeping 90,000 won in reserve, lends out 810,000 won to Mr. Park. This process continues, and the initial 1 million won can grow to as much as 10 million won.
Here’s the crucial point: while new money has been created, interest has not been generated in the same process. If the interest rate on loans is 5% per annum, Mr. Kim, Mr. Lee, and Mr. Park will collectively owe a total of 1.05 million won (the principal plus interest). However, the total money supply in this economy is only 1 million won. Therefore, there isnt enough money available to repay the interest.
### The Consequences of This Paradox
This paradox presents a significant challenge in modern economies. As the money supply increases without a corresponding increase in the ability to repay debts (due to interest), it creates a cycle of inflation and financial insecurity. Many people find themselves in a constant struggle to keep up with rising costs while their purchasing power diminishes.
The governments monetary policies, often aimed at stimulating growth, can inadvertently lead to a decrease in individual wealth. As inflation rises, the purchasing power of savings erodes, leaving those who save feeling increasingly vulnerable. This situation fosters feelings of inadequacy and fear, especially among those who are diligent in their financial habits yet see others thriving in a seemingly unfair system.
In conclusion, understanding the dynamics of inflation and modern monetary systems is crucial in navigating today’s economic landscape. The fear of missing out is not merely a psychological phenomenon; it is rooted in the realities of financial policy and economic behavior. To mitigate these fears, individuals must become more informed and proactive about their financial circumstances, challenging the norms that govern wealth distribution in our society.
### Why Simply Breathing Can Lead to Poverty
Inflation refers to the general and sustained increase in prices. When prices rise, it is equivalent to a decrease in the value of money. The decline in moneys value occurs because the amount of money in circulation continues to increase. So, one might wonder: cant we just stop increasing the money supply? Unfortunately, that is where the problem lies.
In a modern monetary economy, the mechanism of money expansion operates as follows: Suppose Mr. Kim borrows 1 million won from Bank A and deposits that amount into a savings account at the same bank. Assuming a reserve requirement of 10%, Bank A retains 100,000 won and lends out the remaining 900,000 won to Mr. Lee. Mr. Lee then deposits this 900,000 won into Bank B. Bank B, keeping 90,000 won in reserve, lends out 810,000 won to Mr. Park. This process continues, and the initial 1 million won can grow to as much as 10 million won.
Here’s the crucial point: while new money has been created, interest has not been generated in the same process. If the interest rate on loans is 5% per annum, Mr. Kim, Mr. Lee, and Mr. Park will collectively owe a total of 1.05 million won (the principal plus interest). However, the total money supply in this economy is only 1 million won. Therefore, there isnt enough money available to repay the interest.
### The Consequences of This Paradox
This paradox presents a significant challenge in modern economies. As the money supply increases without a corresponding increase in the ability to repay debts (due to interest), it creates a cycle of inflation and financial insecurity. Many people find themselves in a constant struggle to keep up with rising costs while their purchasing power diminishes.
The governments monetary policies, often aimed at stimulating growth, can inadvertently lead to a decrease in individual wealth. As inflation rises, the purchasing power of savings erodes, leaving those who save feeling increasingly vulnerable. This situation fosters feelings of inadequacy and fear, especially among those who are diligent in their financial habits yet see others thriving in a seemingly unfair system.
In conclusion, understanding the dynamics of inflation and modern monetary systems is crucial in navigating today’s economic landscape. The fear of missing out is not merely a psychological phenomenon; it is rooted in the realities of financial policy and economic behavior. To mitigate these fears, individuals must become more informed and proactive about their financial circumstances, challenging the norms that govern wealth distribution in our society.
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