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

To: Claude Cormier who wrote (53872)	2/15/2006 1:17:36 AM
From: GST	Respond to of 110194

<Things are destroyed or depleted over the long term, and assuming an increase of the money supply, the things that still exist at the end must see their prices increase.> No, if things are truly destroyed as you put it, then the price would go up even if there was no increase in money supply. Surely something so simple as that is not lost on you. Oil for example is a non-renewable resource that is destroyed when it is used. Over time, the price of oil will increase, independent of the supply of money. <.... you do not get a general increase in the level of prices. You get only a increase in prices in one or a few sectors and a decrease in prices in other sectors. Overall prices deflation if the money supply decrease> This statement would only be true if there is a fixed sum of goods and constant demand -- neither of which is likely to exist outside of a test-tube where you forbid all of the other factors from existing. A general rise in prices is entirely possible -- indeed likely in a world of growing population, resource depletion and strong preference for positional goods. This persistent rise in prices does not need growing money supply to send prices higher. On the other hand, when there is a trend towards greater supply, as exists for some goods, prices can indeed fall for long periods of time simply do to increased supply and having nothing to do with money supply. Ask anybody who ever bought a micro processor about price trends and you will see this process at work. Once you remove changes in the demand for money, changes in the supply of things that people want, and changes in the level of demand for things that people want -- then you are indeed left with an ingenious theory of 'money supply equals inflation' where money supply explains everything -- trouble is, no such world exists, never did and never will. Nor by the way is sunshine the same thing same food -- although I invite you to eat as much sunshine will satisfy your needs if that is the sort of imaginary world you wish to debate.