To: kendall harmon who wrote (60785 ) 9/12/1999 6:23:00 AM From: lee kramer Read Replies (1) | Respond to
Kendall: Yeah, the Times article on inflation was interesting...in that it was standard boilerplate; it focused in PRICES of goods to give us a "read" on inflation. Talk about putting the cart before the horse. From '65-'85 your government was a monetary "junkie"; it took greater and greater slugs of printing-press money shoved into the economy to simply "maintain" as they inflated the money supply massively. The result was an ever-increasing rise in the general level of prices. Show me an economy where the money supply is fairly stable, and I'll show you an economy that enjoys a fairly stable general level of prices; sure, an OPEC can shove oil prices way up...but to pay for this an economy, given a stable money-stock, will have to sacrifice consumption on other goods and services. Example: You've got $100. Your annual oil cost is $10. Everything else you buy is limited to $90. If oil suddenly costs $30 annually, this leaves $70 for all else...unless your friendly banker (The Fed/Treasury) hands you another $30 or $40 or $50. Now you're able to pay that $30 oil bill, and all the other stuff and more. When governments inflate the money supply holders of dollars and lenders know that the value of their dollars will depreciate, become worth less...as prices rise. And anyone with the power or ability to raise prices for their goods and services will do so, the thinking being "well, if my dollars are gonna be worth less, all I need to do is pull in more dollars." Multiply this a gazillion times and you get a ratcheting up in the general level of prices. Only governments can inflate...and when they do the consequence is Rising Prices. I view this Friday to Friday anxiety over PPI, CPI much foolishness...but it's the game currently being played and it can' be ignored. But if you want a real handle on inflation keep an eye on the money supply, not prices. Place a long term chart of money supply over prices and you'll see a pretty strong causal relationship. (Lee)
