But if once public opinion is convinced that the increase in the quantity of money will continue and never come to an end, and that consequently the prices of all commodities and services will not cease to rise, everybody becomes eager to buy as much as possible and to restrict his cash holding to a minimum size. For under these circumstances the regular costs incurred by holding cash are increased by the losses caused by the progressive fall in purchasing power. The advantages of holding cash must be paid for by sacrifices which are deemed unreasonably burdensome. This phenomenon was, in the great European inflations of the 'twenties, called flight into real goods (Flucht in die Sachwerte) or crack-up boom (Katastrophenhausse). The mathematical economists are at a loss to comprehend the causal relation between the increase in the quantity of money and what they call "velocity of circulation."
Well I disagree.
Most of the public does not know or care about such things.
But even if they did, I dispute that fact that it is occurring. Monetary growth the last year is up what? 3%? Smallest increase in how long?
Probably the most compelling argument against hyperinflation is the fact that it has not happened in spite of tax cuts, tax credits, hugely falling interest rates to 1%, war expansion, round after round of cash out refis, near panic buying of houses, etc etc etc for two full years.
If that did not produce it, exactly what will. Right now we see rising interest rates, tax credit cut off, refis DOA, stagnant housing, falling corn price, falling bean prices, falling lumber prices, falling jobs, falling wages, and falling auto demand.
Those are hardly the conditions that will cause panic spending.
In fact saving fell to ZERO%. There is no more to spend.
Mish |
