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Strategies & Market Trends : MDA - Market Direction Analysis
SPY 652.56-1.5%Nov 20 4:00 PM EST
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To: Haim R. Branisteanu who wrote (52412)5/27/2000 11:33:00 PM
From: Zeev Hed  Read Replies (1) of 99985
 
I agree with you that inflation may be ignited by bad fiscal and monetary policies, but these are not the only sources of inflation. Inflation was around in times where they were no monetary and very little fiscal policies. Once you tie the monetary base to a commodity whose supply growth is limited, you engrain inflation in that system, or limit the growth of the economy to the growth rate of that commodity. It is really simple arithmetics.

Do a simple mental exercise, during periods of extreme deflations, does the total amount of gold backing currencies (in those countries where such conversion was the law, like the US and the UK in the 19th century) decline to reflect this deflation? It does not, but its price may decline with all other commodities. If you keep that commodity in dire supply during period of growth, a smaller stock will have to cost more money (assuming constant money velocity), thus inflation.

Zeev

Zeev
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