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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 (53845)	2/14/2006 4:40:36 PM
From: gpowell	Respond to of 110194

that increases in money supply increase aggregate price levels over time is not only logical, but clearly evident in the empirical facts. The price level is determined by the total flow of money (or money stuff) meeting the total flow of goods and services. Consequently, under an assumption of a constant price level, as the amount of goods and services increases so must the supply of money stuff. Only if the marginal flow supply is greater than the marginal increase in output will the price level rise. What the empirical and theoretical facts show is that over the long run an endonegenously determined money supply, i.e. a free market in money, results in a stable price level. however, those same empirical facts show that while a gold standard obtained, prices stayed largely constant over a long time period (i.e., gold's purchasing power did not decrease). Agreed, with the caveat that in the short-run gold’s purchasing power did fluctuate. Given that output increased considerably over the period that commodity standards were used then it must be that the commodity supply used as money (money supply) was constantly increasing. by contrast, the value of the fiat dollar has decreased by a cool 95% (!!) since the Fed came into being in 1913. …all after WWII. Corresponding to a willful act in response to Keynesian monetary theory, and a socialist agenda. And while the Fed still shows an inflation bias, and a commitment to counter-cyclical policy, since 1986 reserve growth is no where near as high or volatile as in the previous 25 years. Implying that a large part of the “money stuff” increase in the last 20 years has been endonegenously determined.