quote:Some people falsely assume that money is ‘backed’ only by something that already exists – something that exists before new money is issued. They imagine a fixed quantum of gold, for example, or some other commodity or precious metal. When these people hear pundits or politicians attacking the Fed for ‘printing money,’ they accordingly assume it’s a bad thing – something that automatically causes … inflation.
But this is a mistake – a mistake with huge consequences. And it’s not hard to see why.
Let’s start with inflation. The thing to remember about inflation is that it’s a relation. Say that again: Inflation is a relation. To simplify slightly, it’s a relation between the quantity of money on the one hand and the number of available goods and services on the other hand. Hence the colloquial definition of inflation as ‘too much money chasing too few goods.’
I know that some of you will criticize me for not putting my answer in my own words but at this point, I don't understand some of the concepts enough to know the words.
Once Phat has made the corrections himself, I will remove this from mine. Please reply to Phat's own message, not to this one.
Edited by dwise1, : ABE: QS of portion of Phat's message with format corrections