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Message: <blockquote data-quote="prodigy" data-source="post: 851377" data-attributes="member: 232">Inflation will happen when there's too much money circulating. Bank Negara have to carefully monitor the cashflow in the country and not circulate too much money. Say the government decides to print lots of money and circulate it. People will be extra rich. Say your boss just gave you a 100K payrise per month and a 48 months bonus. You'll basically start splashing on a new car from Mr A, eat expensive food at Mr B's restaurant, buy expensive stuff and pay for stuff that are half the price of the actual value from Mr C, buy something from Mr D whereby you don't need it at all. You're actually making Mr A,B,C and D rich out of nothing. When these 4 guys go out, they too are rich and start splashing on other things they don't need and as you can see its a chain reaction whereby everyone suddently gets rich and wanna spend. When there's excessive demand, people will skyrocket the price of their goods. At one point, the government has to stop releasing money to the market. This is when inflation happens. Your cashflow suddently stop, your boss says you're gonna take a 200% paycut and no bonus this year. You stop buying things for fun, you stop eating at expensive restaurant, you stop buying things you don't need. Mr A,B,C and D has lost some revenue. He too stop buying. Your credit card bill comes and you realise you can't afford to pay for the inflated priced items which u purchased few months back. Worst still, the excessive stocks that were bought at a high price has small value now because everyone has no more spending power and everyone wants to drop the price of their goods. Retrenchment happens to cut cost, companies go bankrupt and people have no money to eat and start begging in streets. When begging doesn't help, they steal and fights happen.Basically this is all a chain reaction. This shows how important economy is in the country and a national bank have to be very very careful when issuing money out. My explanation may not be the best but if you understand a little, try to relate it to daily lives and you'll see how dangerous is it to be in a high inflation country.</blockquote>

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