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Strategies & Market Trends : Mish's Global Economic Trend Analysis
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To: Sunny Jim who wrote (100842)8/14/2009 3:00:16 PM
From: mishedlo1 Recommendation  Read Replies (1) of 116555
 
I can understand how inflation is related to money supply (including credit as part of the definition of money supply). What I haven't seen is a convincing analysis relating money supply to the size of the economy. If money supply exceeds the size of the economy to absorb it, you've got inflation. Conversely, if money supply is too small to support the size of the economy, you've got deflation. How do you determine what the appropriate size of the money supply is relative to the size of the economy? Is that an answerable question?

The idea that money supply needs to increase with the economy is fallacious.

Any money supply, as long as it is divisible, is sufficient.

Mish
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