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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory

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To: mishedlo who wrote (50643)	1/21/2006 5:25:20 PM
From: gpowell	Read Replies (1) of 110194

I have given dozens of examples of why price levels are not "completely determined by the supply of money". Yet, numerous times you have asserted the disconnect between increases in the money supply and the absence of accelerating inflation - attributing this paradox to money leaking into housing and the stock market. You cannot imagine that nearly all changes in the money supply are endonegenously determined, and that oversight is helped along by what I consider to be a 19th century definition of money. The bottom line, once the currency holding demands of the public are accounted for, the money supply has not grown much if at all since 1986 as this chart of the inflation/disinflation bubble indicate. i10.photobucket.com In fact that is a downright silly statement. Here are just a few examples where prices are set by other than monetary inflation/deflation: peak oil hurricanes insects rain drought rising productivity disease war Clearly, this confirms your 19th century view of money as exogenous, as your list contains predominately exogenous disturbances. BTW, you should be clearer about what you mean by “prices being set.” I assume you mean “price level.” Money supply is not going to drop in the scenario you described. I didn’t provide a scenario. You might want to read some of the research done on actual hyperinflations, I suggest start with Cagan’s and get back to me. As for any "controlling mechanisms or regulation".... yes I believe in a controlling mechanism. I would let the free market set interest rates and not the FED. I mentioned the supply of money, not interest rates. I suppose you might believe that interest rates are entirely determined by liquidity? You are not demonstrating that you have a detailed knowledge of monetary theory, nor, I say, a comprehensive and objective view of current economic conditions.

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