Heinz Blasnik- Views You Can Use Message Board

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Strategies & Market Trends : Heinz Blasnik- Views You Can Use

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To: zonder who wrote (1575)	5/20/2003 11:39:42 AM
From: GraceZ	Read Replies (2) of 4905

Japan bought the idea that expanding the monetary base in excess of the supply of goods and services would in fact result in what we call inflation or a persistent rise in prices (they had the best of advice from Milton Friedman in this regard). They have been expanding the money supply for the last ten years or so while their GDE sloshes around and in nominal terms turned negative for several years. They are still waiting for that second half of the definition to kick in. The fact is that if that money you create doesn't chase goods and services but instead ends up in CDs and savings deposits the expansion of the money supply doesn't wind up reducing the purchasing power of the currency. In Japan the purchasing power of the Yen is increasing by 1% a year. One could argue that potential inflation is stored up somewhere ready for the dam to crack, but if there is a crack in the dam it might be in the idea that expansion in the money supply in excess of the supply of goods and services will always cause a general rise in prices.

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