Assume i lend you money and i require that you pay me interest in the amount of
$100. So instead of spending your $100 on a basket of goods, you have to hand the
money over to me.
Inflation strikes - prices are rising and wages are rising. Soon, the $100 basket of
goods increases to $500. So what used to cost you $100 would now cost $500.
The $100 you hand over to me used to buy me $100 worth of goods. The $100 you
hand over to me after inflation strikes now buys only one fifth of what it used to. This
Really hurts my pocket book. On the flip side, you used to hand over $100 when it
bought $100 worth of goods. But now, after inflation strikes, you are still handing over
$100 - a sum far lower than what it was once worth. This is a good position for you to