What is inflation?

Inflation initially refers to the phenomenon of currency depreciation caused by the circulation of paper money exceeding the actual demand in commodity circulation. The circulation law of paper money shows that the circulation of paper money cannot exceed the symbolic amount of gold and silver. Once this amount is exceeded, paper money will depreciate and prices will rise, leading to inflation. Inflation will only happen when paper money is in circulation, but it will not happen when gold and silver money are in circulation. Because gold and silver money itself has value, as a means of storage, it can spontaneously adjust the amount of money in circulation to meet the amount of money needed for commodity circulation. Under the condition of paper money circulation, because paper money itself has no value, it is only a symbol representing gold and silver currency and cannot be used as a means of storage. Therefore, if the circulation of paper money exceeds the quantity needed for commodity circulation, it will depreciate. For example, the amount of gold and silver money needed for commodity circulation is constant, and the circulation of paper money is more than twice that of gold and silver money, so the unit paper money can only represent 1/2 of the unit gold and silver money value. In this case, if the price is measured by paper money, the price will double, which is commonly known as currency depreciation. At this time, the number of paper money in circulation has doubled compared with the number of gold and silver money needed in circulation, which is inflation. In macroeconomics, inflation mainly refers to the general rise of prices and wages.

Simply speaking, excess liquidity means that the monetary authorities issue too much money, the amount of money grows too fast, the sources of funds of banking institutions are abundant, and the savings of residents increase rapidly. On the macro-economy, the growth rate of money exceeds the growth rate of GDP; As far as the banking system is concerned, the growth rate of deposits is much faster than that of loans. According to China's current situation, at the end of 2006, the narrow money supply was 12.6 trillion yuan, an increase of 17.5% over the previous year, and the growth rate was 5.7 percentage points higher than that of the previous year, much higher than the growth rate of GDP in that year; The excess deposit reserve ratio of financial institutions was 4.8%, 0.6 percentage points higher than the end of last year; The total deposits of financial institutions are higher than the total loans, that is, the difference between deposits and loans is 1 1 trillion yuan, an increase of10.7 trillion yuan over the end of last year. Therefore, to some extent, there are signs of excess liquidity in China. But strictly speaking, excess liquidity is a complex economic and financial theoretical problem, not just the problem of excessive money and excessive difference between deposit and loan, whether from the appearance, causes or solutions.