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

To: gpowell who wrote (50627)	1/21/2006 3:28:46 PM
From: mishedlo	Read Replies (2) \| Respond to of 110194

Austrian, assumes that monetary demand is constant and therefore the price level is completely determined by the supply of money. If perchance some people believe that (and I doubt many people do believe that), I DO NOT. I have given dozens of examples of why price levels are not "completely determined by the supply of money". In fact that is a downright silly statement. Here are just a few examples where prices are set by other than monetary inflation/deflation: peak oil hurricanes insects rain drought rising productivity disease war It may have escaped your attention the one of the characteristics of a hyperinflation is a falling demand for money, such that money supply measures may actually shrink even as prices "hyper" inflate. Hyperinflation = delta P > 50% per month. Money supply is not going to drop in the scenario you described. The value of money, "purchasing power" if you prefer that term, will drop but not the supply. How does supply drop in your scenario since you did not mention either bankruptcies, writeoffs of debt or printing presses? Besides, other than a governmental collapse of some sort, loss of faith in the government, or massive printing, what is likely to cause hyperinflation? Those are the typical causes of price hyperinflation. As for any "controlling mechanisms or regulation".... yes I believe in a controlling mechanism. I would let the free market set interest rates and not the FED. That would control things in a hurry. In fact I would abolish the FED. Mish