As MindLikeWater commented in the post below, currently the economy is contracting (deflating) the money supply much faster then the bailouts can be printed. As mentioned, credit is being withdrawn at a rapid pace and new credit is being created at a very slow pace. This contraction exceeds the speed of the governments ability to create it (bailouts, rescues, deficit spending, and interest on reserves, etc.).
The detrimental effects of this (any?) government intervention is that they shoot late and overshoot - substantially. The money/credit creation is happening and soon it will exceed the credit contraction. This will be the cause of the inflation. Inflation is not caused by high prices in fuel or commodities or whatever, it is caused by an expansion of the money supply. As Milton Friedman said "Inflation is always and everywhere a monetary phenomenon."
Wednesday, October 15, 2008
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- Be The Mac
- Friends of Mozilo Powers Activate
- Inflation or Deflation
- Deflation or Inflation?
- USA - the socialist's paradise
- Isn't this what started this mess in the first place?
- Misery Loves Company
- Plunging of the Baltic Dry Index
- Steps to a Depression
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1 comment:
OK, I think I understand now ... short-term, we'll see deflation, until the massive new spending and credit-creation policies kick into effect, when the money supply will rebound to Inflation. Sigh. Y'know, for the government's sake, we'd better *hope* we have inflation, because that's the only way they'll ever pay off that ten-trillion dollar debt (assuming they ever intend to pay it off). Wouldn't a true nightmare scenario be continued deflation (as we had in the 1930's)? Because then, the government would be aggregating massive debt and committing to paying it off with ever-more expensive dollars.
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