Little John,
If the value of the US dollar continues to soar, prices of
imports decline. The amount of money supply creation
required to offset the decline in currencies would be
have have to be a truly incredible amount, not a percent
or so more a year. Declining US profits=declining share prices=
another contraction in money supply, as monetary value
is simply erased.
Although a german style 1000% inflation a year caused
by printing money would inflate the economy all right it would also ruin savings, I don't see Greenspan trying this do you?
Take a closer look at money supply. IS it Growing??
the M1, stagnant from dec 88 to nov 89, had no steady growth
until nov 91, and has been declining since July/94. This
is the measure I would use to look at consumer driven capital
expansion. M2 and M3 measures have increased enouigh to offset
the decline.
I would say that the tens of billions of dollars plowed into
US bonds and stocks, when withdrawn, would also
mean a colossal contraction in money supply.
More importantly, unless it virtually starts printing money
to increase the money supply, I would say that money
supply isn't driven by the government, but by the consumer.
Money supply can contract if consumers simply
stopped taking out loans (as happens in recessions, see the m1
dates listed above). Money supply is hardly the amount of
physical dollars out there alone, this is only a small % of money supply.
This is why there is such a danger of a rapid contraction, when people get scared-or tapped out.
On an aside, I have often thought that indebtness is
a hidden contraction in money supply. As people
get more and more in debt more and more of their income
is devoted to paying off debts, and less is available to
buy new products.
I am only an amateur, some things to think about.
Don't think deflation is here just yet.
Albert |
