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

To: mishedlo who wrote (50673)	1/21/2006 7:51:40 PM
From: gpowell	Read Replies (2) \| Respond to of 110194

WTF does that have to do with your assertion that money supply has not grown since 1986? It is point blank a stupid assumption. The chart is consistent with the fact that reserves (excluding the currency holding demands of the public) have not grown much if at all since 1986. Perhaps I wasn’t as clear as I could have been on that. Your thesis is that the money supply measures have exploded, and the absence of outright inflation you must explain away by referring to bubbles, government manipulation of data (hedonics), or some other invention, which I view as nothing more than circular logic. I provided examples OTHER than increase in money supply that can cause prices to rise and fall. And some of them like peak oil and weather are VERY important. Are you saying weather cause inflation? We’re talking about what factors determine the price level, not individual prices. It really does appear that you are having trouble distinguishing between changes in relative prices (which evolve to match individuals’ marginal rates of substitution between the multitude of possible consumption, savings, and investment choices, spanning both the present and future), and the factors that determine the price level. Over the long haul prices of goods will tend to rise if there is ever increasing money supply. That would be true only in static equilibrium. Under a dynamic intertemporal model, given a marginal increase in demand for loanable funds, marginal output increases such that over the long haul the price level remains constant. This fact is why I wanted you to go through the exercise of determining if a free market in money would be prone to instability and failure. You might also want to check historical money supply and price level figures that obtained under commodity standards. My views are nothing like you distort them to be. Furthermore I think you know it so I am calling you point blank a liar. Is that clear? I hope so. Your views are consistent with a hard money school advocate, i.e. a commodity standard and 100% reserves - no fractional reserve banking. That is hardly a free market in money. I’m not distorting your views; neglecting for the moment that I have simply corrected some of your more flagrant errors, I’m pointing out the inherent tension between what you think you believe and what you actually advocate. In normal circumstances hyperinflation of prices occurs BECAUSE of rapid printing of money. Hyperinflation has a definition, and that is a price level rising greater than 50% per month. By that stage of the game it doesn’t matter what the money supply is doing, and that is why Cagan, among others, have measured the money supply failing. Again, hyperinflation is characterized by a rapid and continuous decline in the demand for money. The point of the exercise is that the price level may fall or rise depending upon the money holding decisions of the general public regardless of what money stock is doing. This isn’t idle theory, it goes to the heart of being able to distinguish between endogenous increases in the money supply which impact output, but not the price level, and exogenous increases that must have an effect on both output and the price level. In a vacuum the statement is preposterous. I was generous to provide you a way it could be true, some sort of massive loss of faith in a government. Given that my statement is theoretically sound and has historical precedence, for you to make the assertion that it is preposterous indicates that you have very little understanding of monetary theory. It must be that the term “money demand” doesn’t evoke a meaning concept for you. But I would eliminate fractional reserve lending for starters and I would probably do a lot of other things. ah… haha, I knew it! I knew you were a hard money advocate and wrote it above before I even read this far. You have shown a lot of confusion about what constitutes the money supply. You should know that the even under a hard money system the money supply would still fluctuate – you would know that if you had a concept of the demand side. I would consider something like allowing money supply to rise and fall with population growth but I am not sure, I need to to think about that. Oh my god! I didn’t read this far and I again correctly assumed that your fondness for a hard money system was an erroneous belief that it provided a constant money supply. If the FED (which I would eliminate but that will not happen) absolutely HAD to have 2% inflation then I would not look at prices for reasons that should be clear to everyone except the extremely dense headed. I would would instead target a 2% increase in money supply. You are asking for a long theoretical dissertation on something that is not likely to be done soon if at all. Why should I waste time on it. Had you studied it, which I highly recommend, that “dissertation” would already be done and you could simply cut and paste, or write a condensed version in under 15 minutes. It is very clear that you have not made an effort to even learn the basics of monetary theory or monetary history. I just hope no one is overly influenced into making disastrous personal decisions as a result of your misapplication and incomplete understanding of economics.