Currency debasement is the practice of lowering the value of money.
It has been used by monarchs and politicians for thousands of years to minimize the burden of huge debts without inflicting major taxes on their subjects or citizens.
In other words, lowering the value of money is done for financial gain of a government over the expense of its citizens.
Since the beginning of modern banking and the invention of paper money starting the 1600’s governments learned the power of the printing press to create money out of thin air.
The discovery of this incredible spending power soon leads to huge public works projects, entitlement programs, funding wars, political luxuries and other extravagances that are unpopular with the tax paying public, but creates greater power for the government. There have been numerous occurrences throughout history.
The temptation for politicians to encourage creating more money out of thin air (printing money with no commodity backing) to finance government projects drives currency debasement.
For example; France’s Louis XIV excessive spending ran the French Finances in to the ground. The outcome was a series of booms and busts, and then bankruptcy, revolution and tyranny. Generations of French citizens were stuck with a herculean tab afterwards.
Lowering the value of money is paid for by the tax paying public though a loss of purchasing power
and with boom and bust cycles.
It takes years for the inflation (and booms and busts) to occur. Most people never make the association between the debasement of the currency and the high toll that is paid by the public.
During the boom times the public senses a strong sense of prosperity. This euphoric state does not last. Eventually inflation kicks in and/or dreaded bust cycles.
This is much like using credit cards and debt to augment a family’s income. For awhile, the family has more to spend. They are able to purchase items such as new cars, big screen TVs, take exciting vacations and more. This leads to a sense of perceived prosperity.
However, if left unchecked, debts increase to the point a family can not sustain this lifestyle. They either take control of their finances before it is too late, or they go bankrupt. Either scenario is painful and may be avoidable by applying proper
Financial Planning Techniques.
Currency debasement has taken on many forms throughout the centuries. To learn more see:
How Currencies are Debased.
Return from Currency Debasement to The Basics of Money