[ExI] Inflation graph

Mirco Romanato painlord2k at libero.it
Fri Nov 29 13:50:48 UTC 2013


Il 29/11/2013 04:46, John Clark ha scritto:

> The amount of circulating currency has increased dramatically but the
> inflation rate has not, therefore the theory that it is the only
> variable responsible for inflation must be wrong.

Call it "price index" or "prices" but not "inflation".
Because "inflation" is the increase of the monetary mass, where the
increase of prices is "increase of price index".

Conflating the two concept together is not good.

The increase of money in existence could be dramatic, but the prices are
not bound to increase dramatically immediately or in any specific time
frame.

Then there are different metrics for money.
Where the M1 of money increase dramatically (at the pace of 1 trillion
at year), there was/is a reduction of M3 due to reduction of bank credit.
The bank credit multiply the base money many times, so it is not
abnormal to see an apparent reduction of prices/small increase (caused
by the reduction of bank credit) with a concomitant large increase of
base money largely used to prop up the bank balance sheets and not
moving in the larger economy.

It is just a question of time and something, sometime, will cause the
money hold in the banks to end in the hands of the population and start
running around. Until now they were soacked by China and others.
Wait until the short maturity bonds in the hands of China mature and the
Treasury must pay them back.
I do not think they will keep USD in cash at home or in some vault. They
will spend them in any way possible, to buy commodities (rising prices)
around the world. The you will see real "prices inflation". And if
others start ditching the USD, the "real price inflation" will start to
become "high price inflation".

> In retrospect it's not
> surprising that the theory is wrong, if inflation were caused by just
> one thing then economics would be simple, instead the economy is the
> product of 7 billion minds and is astronomically complex.

Monetary inflation have a single cause (the increase of the units of money).
Price inflation is caused by monetary inflation, just the ways and times
this happen are not fixed and rarely easily foreseeable.

If there was not monetary inflation (and credit expansion), every
increase in the price of some class of assets would cause the reduction
in price of some or all other assets.

> People are always fighting the last war not the present one, today they
> remember the 1970's when inflation was terrible and fear its return and
> overcompensate.  In the 1970's they remembered the 1930's when deflation
> was terrible and feared its return and overcompensated too far in the
> other direction.

This is the reason you need an inflexible, not human-controlled, mean of
indirect exchange. So human stop compensating and overcompensating
(usually for their personal profit first).


Mirco





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