The value of a currency is determined by the quantity of currency in circulation.
Every dollar put into circulation makes an existing dollar worth a bit less.
Essentially, inflation is an invisible tax. When the government needs money, the Federal Reserve just adds it to the government's books. It creates money out of thin air.
That makes the money that's already out there worth less.
So,...when the Federal Reserve prints up a few hundred billion dollars and gives it to the government, you still have that $20 bill in your wallet, but it will only buy what $19.50 would before an additional huge lump of money was printwed up by the Federal Reserve and given to the government.
The Federal Reserve extracts the value from your money by simply printing up more of it.
That's inflation.
If only more people understood this.
