Inflation, Devaluation and Confiscation

When we live in a financial system where money is printed by governments and they decide that only that can be used as a medium of exchange, it should not be a surprise that they print more and more of it (inflate), cut its value (devalue) or steal it (confiscate).

Inflation

It was bad when the US central bank (Federal Reserve) decided to bring in a third round of quantitative easing and did so without stating an end date, but since then we have had other central banks (the European Central Bank, Bank of Japan, and the Bank of England) all jump on the money printing bandwagon. All this new money has to go somewhere, which will result in the price of things to increase and ultimately decrease the value of the paper currency we hold in our wallets.

Market sees rising bank default risk from global QE policies, IMF study finds – April 11, 2013
Quantitative easing: the markets are struggling with a serious drug habit – 24 February 2013
Argentina and the dollar: A fistful of financial instruments – July 4th 2013

Devaluation

Governments slashing the price of their currency has been going on since paper currencies were introduced, with the United States devaluing their currency in 1933 by approximately 40% being one worthy of mentioning. Well in February, the Venezuelan government decided to do something similar when they devalued their currency by 32% against the dollar, and this is the 5th devaluation in the last 9 years.

Venezuelan Currency Devaluation Goes into Effect – February 14, 2013
Venezuela’s Double-Edged Devaluation – February 15, 2013

Confiscation

When the majority of money in a financial system are stored in financial institutions, some governments take the bold move to jump into our bank accounts and take some of the money. This is what happened last month in Cyprus when holders of over 100 thousand euros with hit with a 60% tax. Before this happened, banks in the country were closed to stop citizens from taking their money out of the banks, and once opened, capital controls were introduced which limited people to take out €300 a day.

Cyprus banks remain closed to prevent run on deposits – 26 March 2013
Cyprus banks to reopen with emergency restrictions on cash withdrawals – 28 March 2013
Cyprus passports offered to big foreign losers in EU bailout – 14 April 2013
7 Reasons Why Cyprus Is Hugely Important – Apr 14 2013

Conclusion

There isn’t much difference between inflation, devaluation and confiscation, as all are forms of theft for those keeping their money in paper form. With inflation and devaluation, you still have the same amount of dollars or euros in your bank account, but with confiscation, the amount of dollars or euros in your bank account decreases. You should be aware of these different forms of theft, as they maybe coming to a city near you.

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