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Strategies & Market Trends : Mish's Global Economic Trend Analysis -- Ignore unavailable to you. Want to Upgrade?

To: mishedlo who wrote (70765)	11/1/2007 9:41:42 AM
From: sea_biscuit	Read Replies (1) \| Respond to of 116555

This is great. Some people define inflation as excess money supply (the cause). Some define it as rising prices (the effect). You seem to say it is non-existent because it doesn't appear in your dictionary!

To: mishedlo who wrote (70765)	11/1/2007 10:00:03 AM
From: Tommaso	Read Replies (1) \| Respond to of 116555

When I was completely under the spell of Milton Friedman, I used to enrage my brother-in-law by stating complacently that the price of oil had nothing to do with inflation. What we have to remember is that prices reflect a balance between the goods and services available for purchase and the quantity of money available to pay for them. A constriction of the supply of oil makes a great many goods and services less available. The constriction is reflected in the price of oil and then in the price of the goods and services that are constricted. To document this would require thousands of pages of information. Friedman underestimated the capacity of the world to achieve productivity increases that would exceed the increases in money supply in the period 1980-2000. Thus there was a lengthy period of disinflation. Until new sources of energy or better energy-saving methods are in place, world productivity growth will be restricted and increases in money supply (of which credit is a part) will be reflected in higher prices. Without the sort of discipline that a gold standard used to impose, fiat currencies will increase and prices quoted in those currencies will rise, unless productivity matches the money supply increase. Bernanke and those who vote with him seems to be betting that loose credit will stimulate greater productivity. Others, especially Jim Rogers, think that Bernanke is taking the dollar into a suicidal devaluation. For almost a hundred years following the Civil War, the U. S. government tended to err in the direction of keeping money too valuable, producing repeated recessions and depressions. For the last fifty years, the government has begun to err in the direction of keeping money too cheap and readily available, producing repeated episodes of inflation. I am not as excited as Rogers is, and certainly not prepared to convert all my assets into renmimbi. Especially since I can't ever spell it right.