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To: Little Joe who wrote (5365)	1/7/1998 3:23:00 PM
From: philv	Read Replies (1) \| Respond to of 116759

Little Joe: Definition of Inflation: Everybody has a different definition of inflation, applying the term to commodity prices, stocks, and money equally. Strictly speaking, inflation applies to monetary policy only, and in this regard you are correct that the money supply is inflating. But the more general definition causes confusion in that people see inflation in some sectors (Dow Jones, taxes), while their cost of living is also inflating, leaving them poorer, with less money to spend (deflation). But if the stock market crashes, we will immediately all jump on the deflation wagon, where I am sure the S.E. Asians sit, and they are lurching their way to New York looking for help. So the argument remains, inflation or deflation, which will reign, which will be "allowed". The fixers are tweeking here and tweeking there, trying to keep the economy from tipping over in one direction or the other, and they are pretty good at tweeking! That's their job! Its fun to watch, and its getting harder and harder for them to constantly balance debt, gold, inflation, deflation, interest rates, and currencies. And this is in a time of "calm" internationally with no major economic, political or military problems anywhere! Phil

To: Little Joe who wrote (5365)	1/8/1998 5:58:00 PM
From: Albert V	Read Replies (1) \| Respond to of 116759

Little John, If the value of the US dollar continues to soar, prices of imports decline. The amount of money supply creation required to offset the decline in currencies would be have have to be a truly incredible amount, not a percent or so more a year. Declining US profits=declining share prices= another contraction in money supply, as monetary value is simply erased. Although a german style 1000% inflation a year caused by printing money would inflate the economy all right it would also ruin savings, I don't see Greenspan trying this do you? Take a closer look at money supply. IS it Growing?? the M1, stagnant from dec 88 to nov 89, had no steady growth until nov 91, and has been declining since July/94. This is the measure I would use to look at consumer driven capital expansion. M2 and M3 measures have increased enouigh to offset the decline. I would say that the tens of billions of dollars plowed into US bonds and stocks, when withdrawn, would also mean a colossal contraction in money supply. More importantly, unless it virtually starts printing money to increase the money supply, I would say that money supply isn't driven by the government, but by the consumer. Money supply can contract if consumers simply stopped taking out loans (as happens in recessions, see the m1 dates listed above). Money supply is hardly the amount of physical dollars out there alone, this is only a small % of money supply. This is why there is such a danger of a rapid contraction, when people get scared-or tapped out. On an aside, I have often thought that indebtness is a hidden contraction in money supply. As people get more and more in debt more and more of their income is devoted to paying off debts, and less is available to buy new products. I am only an amateur, some things to think about. Don't think deflation is here just yet. Albert