Does a change in the money supply, the 'money' in bank accounts which represents private debt, affect the inflation rate? My assertion is that it does not. Only the value of the central bank notes (actual paper currency) matters. The rest of the money that arrises through the fractional reserve banking system is backed by private debts (particularly mortgages), the price of which is denominated in currency notes. So a change in the value of paper currency automatically adjusts the price of these private debts, and changes the wider 'money' supply in direct proportion. The value of money is entirely dependant on what is backing it. (The value of paper currency is also 'backed' by taxation, since people need notes to pay their taxes. In this sense, the value of each dollar will be dependant upon the total proportion of wealth being taxed divided by the number of dollars in circulation) The money supply increasing because of more lending in the private sector will not necessarily cause any inflation because it is being proportionally backed by loans/obligations/private debt/mortgages. There was an argument about whether inflation could be controlled by increasing the reserve ratio requirement for private banks, and I thought discussion was worth its own topic.
This is a very complicated question but in general messing with the money supply too much can create hyperinflation. The "value" of those notes can change based on the money supply/currency manipulation/printing money. Currently the money is backed by a promise. A promise that the US Goverrnment will make good on its debts to a large degree. The faith in the good credit and solvency of the US. Since the paper is not backed by anything with intrinsic value (Gold, property and so on) the value is held up solely by investor confidence. Every trading day in the treasury and currency markets investors cast a vote of confidence, or lack thereof, in the US. If one day investors lose confidence the value of the currency will drop. If investor confidence goes, all the Fed horses and all the Feds men will not be able to restore it by printing more money.
I just wanted to point out that if inflation ever gets out of control in the United States, the Federal Reserve will not simply be able to counteract it by just increasing the reserve requirement.
What about all the money hoarded in banks and not circulating? Doesn't that increase the value of the active money? You can add to that the money traitors take out of the economy and lock away in offshore havens. Even the small amounts held privately as ready cash by millions of people must affect the active money supply. Second, the value of a currency is the value of its nation's potential and developed resources, both natural and scientific. In order to increase America's worth, we should free our resources from Voodoo Environmentalism. Our STEM resources are stifled also, because of not paying the most valuable minds as they develop their practical value, only after years of starving on the vine. The wise will wilt this way. Our talent pool has dried into a puddle. Gold is an imaginary and anti-productive support of currency. Those who push it are speculating frauds who just want to inflate the market for it. Economists have no right to cover for jihadist OPEC by stating the "inflation-adjusted" price of oil. OPEC price-gouging, enabled by our transnational oil companies, caused practically all that inflation. Also all economic successes since the 1973 Embargo are mirages caused by pumping $15,000,000,000,000 in debt into circulation. All along, we have been driving on fumes. Cough, sputter, stop. Who will tow us?
And you've posted the exact reason why the US dollar is the current reserve currency. The petro dollar. For as long as we maintain this, we can print as much money as we want, but this will not remain so.
If I deposit $1000 in a savings account, in a bank with a 10% reserve, the bank can loan $9000, created out of thin air. Over $32,000 if the reserve is 3%. Based on current debt, US banks need ~ $200B in reserves. They have over $1T. They aren't loaning it because the Fed is paying interest on reserves. But, what happens when the market out bids the Fed? $9T+ floods into the market. But, what about inflation? During the housing boom borrowing soared, and a lot of "created" money was pumped into the economy. There wasn't any inflation (other than home prices). That is because there are so many producers of goods, instead of (short) supply and demand, we are in a cost plus world, and we have been since the mid-70's. Ford can't raise the price on a car unless everyone else does. (Which is why wages aren't increasing) And, everyone else will only raise prices due to items in short supply. That home prices increased during the boom (which ended as the builders overshot the demand), and gasoline increased due to global demand.
Is the Saudi king Chairman of the Federal Reserve? Before this treason by the oil companies and their sons the pseudo-Environmentalists, we controlled the price of oil. Now our money and power are owned by jihadist OPEC and its flunkies. The American Eagle has become a camel.
Gasoline prices increased only because of the greed of OPEC and its American Oil collaborators. How can you still believe in demand prices when the economy boomed under Reagan and Clinton and gasoline prices remained the same. How about the postwar boom in the 50s when gasoline stayed at 20 cents a gallon? Economists are toy rats that the fatcats play with. This disproven supply-and-demand price theory is designed to cover up price-gouging. Only patsies allow themselves to be charged far more than the cost. We should have punished OPEC by seizing its assets even before it used them for the jihad. When those animals saw our cowardice in letting ourselves get cheated, the Muslims who led them saw it as an opportunity to re-awaken the dormant jihad.
China and India have entered the picture. The pseudo-environmentalist became the marketing arm of big oil, hyping "peak oil" and man made global warming - thus oil is evil (justifying a high price). Pre-1972, there were gas wars, I paid $0.239 in 1967, because the supply of gas exceeded demand. It wasn't until the US reduced domestic oil production, that OPEC could cut production and increase prices in 1972. Keynes was the first politically popular economist, because he gave government justification for saying they could fix things. Our public servants became "our leaders". It is this increase in government power that gave the fat cats power. We should have gone to war for oil?
This is necessarily false. The "pure value" of something is meaningless to the utility of the marginal unit. For instance the value of one bed is very high because you need something to sleep on, but the value of the next bed is far less intense because it doesn't serve the same function. Therefore the value of any one bed will decrease. Similarly as the amount of money you hold increases the value of each marginal unit decreases (ceteris paribus). Your worldview is also wholly inconsistent with observed facts about hyperinflation. The quantity theory of money is one of the oldest and most basic aspects of economics, as well as an open and shut case. Relevant: http://en.wikipedia.org/wiki/Marginal_utility http://en.wikipedia.org/wiki/Quantity_theory_of_money http://en.wikipedia.org/wiki/Hyperinflation . ... This is an admission that the quantity of money affects the value of the dollar. If the money supply decreases and all prices fall by ten percent then the value of each dollar would then increase as prices fell by approximately the same amount. This cannot be the case. What is the value of a 45,000 dollar a year income tax? Answer: its corresponding monetary value in goods. This means that the value of money cannot be based off of taxation because the value of taxation is based off of the monetary value of goods themselves. The value of money precedes the value of taxes. A better case to argue about inflation is the usual description of productivity increases. For instance in the years leading up to the great depression the money supply increased drastically but the price level was relatively constant because of productivity increases. However, the quantity theory of money doesn't say that a n increase in the money supply will increase prices, merely that an increase in the money supply will increase prices relative to what they otherwise would have been. Also, loans and mortgages are ultimately paid back and then that money is also spent. I don't see what that really has to do with anything.
But right now the phony anti-imperialists champion our economic colonization by OPEC. Price-gouging and cartels are illegal in the United States because they are wrong. When a foreign country does us wrong, we fight. That's what our expensive military is for: to provide the same protections to our citizens that justice protects at home. Why should we be weakling pushovers and accept a third-rate military power charging us dozens of times what the oil cost them? Even more cowardly is the fact that the enemy's oil finances its jihadist war against civilization and we continue to let them use the sanctuary of national sovereignty.
There are often changes of this magnitude caused by increases/decreases in private bank credit that are NOT accompanied by inflation. The vast majority (~93%) of the money supply is private bank credit.
Every case of hyperinflation was the result of a collapse of the balance of payments or in rare cases, the destruction of the nation's productive capacity, NOT by spending on the domestic economy.
It would largely depend on how much you are talking about in relation to the pool of existing money and what else is going on in the economy. In addition, it matters what you mean by the economy. QE isn't reaching main street so it would have a different impact there than it is having just in the capital markets.
And you would be wrong. Asset Price Inflation is caused by reckless & (inevitably) fraudulent private bank credit creation. I would be happy to elaborate if needed. The vast majority of the money supply (~93%) is private bank credit. There is no direct correlation between the money supply & inflation (asset or commodity) or between the money supply & interest rates. The last 30 years have seen interest rates fall from highs of over 20% in the 1980's down to the almost zero rates of today while the money supply has increased dramatically.
Everything I read about what causes inflation is not so much the amount of money actually floating around, money not in bank reserves, but the velocity at which the money in the bank reserves gets out into the economy. Which is why the Fed does not want the economy to take off at an extremely fast rate. If and when the economy does take off the money supply will have to keep pace with the demand for purchasing If the Fed overshoots the demand then interest rates will need to be raised to slow the money into the economy down. If increased interest rates do not stop the demand for money, and the demand continues to increase the money supply in to the economy, then inflation will kick in. This seems to be a double edged sword for the Fed. On the one hand, they want a strong economy, but at a very controlled pace. Is it really possible to have that much control on money and the economy?
