<<The price doesn't drop. Its value does. >>
Wow, you've really thrown me for a loop. I'm lost... Everything of value has a price and it's price is reflective of perceived value. If its value drops, so does its price.
<<Since the core component cost has risen for all goods,...>
Not sure where this came from.
<<The availability of money, that is, price elasticity with respect to marginal demand, is only one factor. Money can be easy to get but people don't necessarily want it because they fear that taking it has strings attached. Your view comes from the economic school of demand management where it is always assumed cheap money will be demanded. Japan is currently refuting that thesis as we did 20 years ago under a different set of parameters. The idea is that you can't push on a string.>>
By availability of money, I had meant money supplied, either from CBs or mining or credit, or whatever. My view largely comes from the Austrian School. I'm not assuming anything about interest rates, credit-worthiness, etc. I'm merely making observations on inflation and what causes it. Inflation/Deflation is only affected by the supply of money or goods, not demand.
<<The connection between the availability of money and prices is unclear, but when the growth of money exceeds the growth of output eventually prices will rise.>>
I agree.
<<If gold rises substantially ceteris paribus, the prices of other goods may or may not rise depending on what monetary authority does.>>
Overall, that is on average, there is no price increase due to a single good like gold increasing in price from higher demand, ceteris paribus. Yes, monetary authority as well as private sources determine the money/credit supply and through that mechanism, prices rise or fall.
<<I disagree about an increase in the supply of gold out of the ground being inflationary. It isn't either inflationary or deflationary. It depends upon what monetary authority does with the increase in the supply of gold.>>
CB's only have 1/3 of the gold. The rest is in private hands. Increasing the money supply whether gold or fiat in general leads to inflation. Only in the extreme case where it is hoarded and there is no wealth effect will inflation be zero. It cannot be deflationary.
<<Central banks do not rule the financial world. We, the people, do. They do what we want. If there is inflation, it is caused by our choices. If we demand more compensation than our output, we can have the central bank monetize the difference, but the consequence will be inflation. You can't get something for nothing. Sometimes central banks are eager to create prosperity and fulfill the demands as laid out in promulgations like Humphrey-Hawkins and in their zeal go beyond the true intent of the people. In that case you may blame the universities because they teach the bankers that a little money never hurt anyone.>>
We the people rule the free world. CBs work for themselves, especially the private banking interests which control them. They give the appearance of working for us... |
