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Strategies & Market Trends : Mish's Global Economic Trend Analysis
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To: gpowell who wrote (35765)8/24/2005 4:21:58 AM
From: shades  Read Replies (1) of 116555
 
guess you’re not aware that the central bank had a hard time keeping up with bank note demand – after the hyperinflation episode ended. Yes, the printing presses were running 24/7 to satisfy the demand to hold bank notes. This is related to Keynes point – what would have happened had the bank not satisfied that demand? For Keynes the result would have been a reduction in output – as the price level would not automatically adjust to a fixed money stock.

safehaven.com

But in the process of giving us more money, to meet the greater demand, more purchasing power is lost, which then requires more units of money (supply) to make up for the loss. Demand rises again for more supply. As can be seen, it's a vicious circle.

As the purchasing power of money keeps lessening it creates a greater demand, soon it is discovered that the purchasing power of the money is falling faster and faster, faster than the demand is rising.

What was an unlimited supply of money meeting a limited demand for money suddenly becomes an unlimited demand for money meeting a limited supply of money, as the money can't be created fast enough to keep up or make up for the loss of purchasing power. Suddenly interest rates start to rise, as do prices. But the rise in interest rates does not support the currency. The purchasing power of the currency falls in spite of higher interest rates. Slowly panic starts to set in. People can't spend their money fast enough - before it looses more purchasing power.

if/When wage inflation hits Gpowell - are you going to be buying comsumer staples funds? Has the global train to the bottom for labor hit its last stop yet? GM is already making H3's in Africa no?
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