Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory -- Ignore unavailable to you. Want to Upgrade?

To: GST who wrote (50419)	1/20/2006 12:38:53 PM
From: mishedlo	Read Replies (2) \| Respond to of 110194

I already have a hundered times. Deflation (in a fiat regime with fractional reserves) is an overall contraction in money supply and credit. Inflation (in a fiat regime with fractional reserves) is an overall expansion in money supply and credit. The reason credit comes into play is fractional lending. Some say there is no difference between money and credit in a fiat regime (I beg to differ) but to them, the equation is simply contraction/expansion of money supply. Some like to say that inflation is price increases caused by increases in money supply but that is a poor definition. It is measuring the effect and not the cause. It is far easier to track money supply than agree on what constitutes a price increase. Productivity can mask huge increases in money supply. This is where Greenspan totally went bonkers. Productivity rapidly increased in the latter half of the 90's disguised massive increases in inflation that went into stock prices. It did not show up in computers and other goods or oil that just kept getting cheaper. That is why looking at prices is totally wrong. If you want to look at prices only, with oil falling, copper falling, computers and goods from China rapidly falling, one might think you believed in deflation in the late 90's unless of course you include asset prices. Hopefully you see how messy this is when it is all very simple. Inflation and deflation are MONETARY PHENOMENON. Period. "Purchasing power" is a nebulous concept, hard to measure and purchasing power can be influenced by productivity, geopolitical factors, peak oil, soybean rust, hurricanes, a fantastic harvest, abundent rain, etc. It is silly to have a definition based on "purchasing power" when that is subject to periods of rain or drought or a new oil well discovered. One must start with a proper definition and IMO a proper definition must equate inflation to money supply. With no fractional lending, and no credit out of nowhere (GSEs, junk bond offereings, etc) there is no need to make a distinction between credit and money. Inflation = expansion of money supply. In theory that can be achieved in a fiat world, in practice I doubt it can. Mish