DAK, of course doubling the number of currency units, like splitting a stock in two, halves their values. After the currency or share split, it of course takes a lot more of them to buy the same thing that one used to buy.
But the world is made up of a vast array of variables.
Another characteristic of people is to want single variable causes. So they say that Uncle Al printing more money during the 1990s caused a bubble in the stock market.
Given the growth in the world's economy and the increasing use of the US$ as a means of exchange and store of value [unwise in my view, but that's another story], there was good reason to increase the money supply. Namely, to prevent extreme deflation as a constant supply of money chased a rapidly increasing supply of goods and services as 6 billion people increasing became part of the modern world's globalized economy.
I explained in an earlier post how the dot.com bubble formed without any control by Uncle Al. If people get it into their stupid heads that they are all going to be rich if they buy gold, then a bubble will form and the price of gold will zoom to $1000 an ounce. But then, as the $1000 buyer looks for a greater fool at $1001, they might be bitterly disappointed to find that they are holding a piece of metal which is so stupid it can't even react with anything else to form something better. It just is!
It's just the madness of the mob. Uncle Al can't do anything about it, other than rant about irrational exuberance, point out the risks of madness, raise interest rates to try to prevent huge borrowings to buy a share in the madness, cross his fingers and hope that the mob doesn't take it too far.
So, the single variable of money-printing can cause prices to rise if the rate of printing exceeds the economic growth rate and so on. But that is nowhere near enough to explain the dot.com, tech/bio and telecosmic bubbles and associated Dow general enthusiasm about a booming economy. We need another variable [which is where those who got nervous about algebra at school and went into the arts start to get bamboozled] to explain the dot.com bubble.
Money printing is NOT the answer. It was a minor variable. As a puzzle for readers, they could try to work out why on earth, if not Uncle Al's money printing, the share price of dot.coms went up a long way.
A clue is to check out the serotonin reuptake inhibitor levels in those who bought dot.com shares after 1997.
Another clue is to ask them a simple question such as "If two typists can type two pages in two minutes, how many typists will it take to type 18 pages in six minutes?" when they are hooked up to one of those brain-scan gadgets which show areas of brain lighting up.
Those who bought the dot.coms will have lengthy and brain-wide lighting up of their brains compared with people who bought other shares. I hasten to add for the anecdotally instead of statistically inclined that there will be a range with even some very low illumination people being sucked in too.
Multiple variables DAK,
NOT Uncle Al's money printing...
Mq |
