And one source of a rapid increase in money is when the economy is growing fast and there is pent up demand. CJ, this is about money supply and the monetization of deficits. Deficit spending increases inflation to the extent the money printed exceeds the creation of new goods and services. If you increase money supply by a net excess of 3%, you will increase inflation by 3% (These are not technically connected, it just works out that way). Japan has little inflation today because they aren't increasing their money supply.
Inflation is caused by only one thing, which is too much money. I think Milton Friedman taught us that much in his ancient series, "Free to Choose".
When we engage in deficit spending, we are going to create inflation. Deficit spending increases the money supply, so there you are. A little deficit spending is harmless but when massively increase deficits as has happened in 2020, 2021, and 2022, you're going to have inflation and with deficits this massive, you're going to have a LOT of inflation.
I understand your point -- that when the economy is demanding goods, you get inflation -- but the real driver is the increased deficit, because that creates money.
We have increased the money supply > 40% since Covid hit; some justified, but . You're gonna have inflation. That's why some of us have been going on about it for this entire time.
Inflation in a given country is unaffected, in large part, by what happens elsewhere. We have ours. The Brits have theirs. Canada has theirs. So, the argument we should look around at other countries for confirmation that inflation is not the product of our own behavior is just false. Again, Japan -- they didn't create vastly more money, and they didn't get much inflation.
These are extreme policies that we have used. We are digging the hole for a huge recession because we're still running massive deficits. Our budget process has entirely collapsed, and we are just digging a deeper hole for ourselves. |
