[ExI] Dollar mining

John Clark johnkclark at gmail.com
Thu Dec 19 15:45:20 UTC 2013


I somehow missed this post until now.

On Mon, Dec 2, 2013 at 12:55 AM, Rafal Smigrodzki <
rafal.smigrodzki at gmail.com> wrote:

>> I am saying that prices, which is what you're so worried about, is equal
>> to the money supply which is all you want to talk about, TIMES  the
>> velocity of money which you don't want to talk about because it is the
>> product of about a zillion independent factors, DIVIDED  by the quantity of
>> things produced which you also don't want to talk about because it is the
>> product of a bazillion QUITE different independent factors. MV=PQ may be
>> true but is useless in predicting what P will be next year if you don't
>> know what V or Q will be next year. It's as useless as the Drake equation
>> is in figuring out
>> if ET exists because we don't know what values to stick into the equation.
>>
>
>
> So you are backpedaling a bit, previously you claimed that recent lack of
> large scale inflation in the US is proof that money supply is not the
> driving factor in inflation.


I remain firm in my assertion that the current large scale inflation in the
USA is NOT caused by the money supply. The reason I can be so absolutely
dogmatic on this point is that currently there is no large scale inflation
in the USA.

> Now, of course the equation of exchange is much more useful than the
> Drake equation,


And that is why economists always agree among themselves and have such a
glorious history of accurate predictions. Oh waite...

> since M, V and Q can be estimated


Guessed at you mean.

> relative price stability in the US despite increased M means that V, Q or
> both have changed to partially offset increased M.


Obviously.

> The question is, what happened?
>

What happened is that for whatever reason V or Q or both moved in the
opposite direction from M, and it means that if the printing presses hadn't
gone into overdrive and M hadn't increased then P would have dropped like a
rock and we'd see 1930's style deflation today.

> My guess is that the main factor is foreign, predominantly Chinese,
> demand for dollar-denominated securities and real estate.


I suppose that's as good (or bad) a theory as any other. But theories are a
dime a dozen, and economists love to guess and they're always certain, but
being certain is easy, being correct is not. At any rate it doesn't matter
why inflation is so very low because the fact remains that it is and thus
it must be dealt with. If a patient has dangerously low blood pressure a
doctor shouldn't prescribe medication that would lower it even more even if
he doesn't understand why it was so low in the first place.

  John K Clark
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