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Strategies & Market Trends : The Residential Real Estate Crash Index -- Ignore unavailable to you. Want to Upgrade?

To: Skeeter Bug who wrote (260813)	7/14/2010 3:22:02 PM
From: Secret_Agent_Man	Read Replies (1) \| Respond to of 306849

exactly

To: Skeeter Bug who wrote (260813)	7/14/2010 4:24:34 PM
From: RetiredNow	Read Replies (1) \| Respond to of 306849

Hmm. I think it's a bit more complicated. Think of the money supply as a swimming pool. When our economy is small, we only have need of a small swimming pool to accommodate the 5 people that use it. Those 5 people could float on top of the water in the pool with no fear of drowning. However, as our population grows, the size of the swimming pool becomes more of a problem. If we try to put 100 people in a pool that can only accommodate 5-10 people, then you are going to stack people on top of each other, which means the people at the bottom drown. So what's the solution? You increase the size of the pool until the 100 people can be accommodated in such a way that they can float effortlessly. That's the money supply. The benefit of a medium of exchange the supply of which can be increased or decreased with minimal friction (transaction costs) is that you can right size it to allow for full potential growth, while minimizing friction. The downside to a money supply like ours is that it can manipulated or it can be abused by idiots like Bernanke. Essentially what Bernanke, and Greenspan before him, has done is that he's tried to build a pool that could accommodate many times as many people as we have. In the last couple of years, though, market forces have been filling the pool with dirt faster than he can dig to increase the pool's size, which means we've seen a net shrinkage. Thus, we see M3 shrinking at alarming rates. What he has not recognized yet is that we have maintained a pool that was way beyond our needs for far too long and now the local water company has had enough and is forcing a contraction of our pool size to more sustainable levels. Bernanke can fight it, but he will lose in the end. In the process, he will make things far more painful for all of us.