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Author Topic:   Aftershock is a theory that makes sense.
crashfrog
Member (Idle past 1467 days)
Posts: 19762
From: Silver Spring, MD
Joined: 03-20-2003


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Message 12 of 13 (645992)
01-01-2012 1:18 PM
Reply to: Message 11 by Phat
01-01-2012 10:03 AM


Re: Attention Crashfrog
Any time that money is pumped into the economy at the rate that Ben Bernanke has done in the last three years will make inflation inevitable.
Absolutely wrong. You're conflating the money supply with the value of goods and services, and they're not the same thing.
And you know they're not the same thing, because you don't buy and sell goods and services based on the number of US dollars in circulation, you buy and sell them based on today's demand for your goods and services. I forget exactly what it is you do, but let's say that you run a grocery store. When it comes time to put a box of tomatoes out on display at a certain price, you don't determine that price by saying that a tomato has X inherent value, and then consulting the CIA World Fact Book to find out how many dollars there are in the United States today, then dividing one by the other or something.
No, what you do is think back to how many people bought tomatoes last week and the week before; if demand was high, you charge a premium price for your tomatoes. If demand was low, you know you'll have to drop your prices to move those tomatoes.
Inflation is what happens when there's more money put in circulation to chase the same number of goods and services. But that's not the situation we're in. The recession dropped US aggregate demand and as a result, production dropped as well. More money chasing goods and services would mean a return to historical levels of GDP growth and then inflation if Bernanke kept printing money but the point is to stop doing that at the point where production is back to its historic trendline but before you start to inflate your currency.
Inflation is like a sled being pulled by a rope called "aggregate demand." When aggregate demand slacks, the sled isn't going anywhere. And you can use quantitative easing - printing money - to take up the slack in the rope. But as long as the rope has slack, the sled isn't being pulled anywhere.
What about this do you find so difficult to understand? With unemployment at around 12%, surely it's not hard to understand how much unused production capacity there is in the United States?

This message is a reply to:
 Message 11 by Phat, posted 01-01-2012 10:03 AM Phat has seen this message but not replied

Replies to this message:
 Message 13 by Straggler, posted 01-01-2012 4:53 PM crashfrog has not replied

  
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