More money in the hands of the consumer increases demand...

[JohnfrmClevelan]

Talk about parsing words. Saying a larger money supply "allows for growth without deflation" is just another way of saying a larger money supply causes prices to be higher than they otherwise would have been, which has been my argument all along.

If you think that "allows for" is the same thing as "causes," you might want to invest in a dictionary.

Creating more IOUs does not increase real demand. It merely transfers it from those who receive the new money last (or not at all) to those who receive it first. Creating more money will never, ever grow and economy. Period. Money is not wealth - it is a medium of exchanging wealth. Triple the money supply and you will not triple the economy. Increase it by a smaller amount, and you will not increase the economy by a smaller amount either. It will have no effect other than to redistribute purchasing power and distort the structure of production. Never in history has an increase in the money supply ever lead to sustained economic growth....

This whole paragraph is just religion. You haven't made a logical argument here at all.

Throughout history, money supplies have grown as economies have grown. It doesn't matter how that money was set up, either - gold, silver, or paper, a bigger economy needs more of the medium of exchange, or trade will be choked off by the lack of it.

And the recipients of newly created money in the U.S. are bankers. Do you understand that the vast majority of all newly created money in the economy is created by the banking system? Those who receive the new money first are the bankers (who in fact create it). And no, bankers are not poor. Those who take out loans then benefit at the expense of those who do not, or take out loans of a lesser amount. Those with more wealth are able to take out higher quantities of loans, and thus benefit at the expense of the poor and working classes who do not have the ability to take out such loans. The creation of money in the U.S. today overwhelming benefits the rich at the expense of the poor, and is a significant driver in economic inequality.

Banks aren't the recipients of the loans they create. The businesses that take out the loans are the ones that gain access to the new money, not the bank, and they are under an obligation to repay that loan. You are inventing a scenario in order to fit your "the first ones to get new money benefit the most" idea. The liability on the bank's books is very real and very immediate (they have given the borrower money); but the asset on the bank's books is the expectation of being repaid, which can very easily fall through.

When a bank extends a loan, they are putting themselves on the hook. They extend credit for the borrower, but if borrower fails to pay them back, it's the bank that takes the hit. Plus, there are other costs to creating a loan - the cost of borrowing reserves, and the cost of meeting capital requirements. What makes you think that banks get the money they create before anybody else?

I have applied common sense. All you have to do is look at reality. You say prices will not rise because of competition, yet prices consistently rise year after year. You say creating money magically creates economic growth, yet the history of money supply expansion is one of constant recessions and in extreme cases hyperinflation and destruction of the currency. I'm not the one failing to use common sense.

Competition works to keep monopolies from inflating prices. But competition between grocers or wheat farmers doesn't keep oil prices from going up. I thought that went without saying.

Creating new demand is what drives economic growth. And it is possible to create new demand simply by putting more dollars in the hands of people who are very likely to spend them. If the government took less from you in taxes, wouldn't you buy more? If you won the lottery, wouldn't you buy more? Well, if the government created some new dollars and gave you a check, that would also lead you to buy more. And new dollars aren't taken from anybody's pocket, so they don't lower anybody else's ability to buy stuff.

Don't you think that when a business takes out a loan that production goes up as a result? Why else do businesses take out loans?

Your assertion that expanded money supplies are the cause of recessions and hyperinflation is not supported by the data, or even by thoughtful logic. You see a correlation, and you call it causation, but you need to go deeper and make some real connection before you can stand on that. Specifically, I think your assertion that new demand can't ever lead to increased production and growth is more dogmatic than logical. What do you think leads to sustainable growth, anyway?

 

[Lakryte]

If you think that "allows for" is the same thing as "causes," you might want to invest in a dictionary.

In the context of this discussion, saying a larger money supply "allows for growth without deflation" is no different than what I have been saying all along.

This whole paragraph is just religion. You haven't made a logical argument here at all.

Throughout history, money supplies have grown as economies have grown. It doesn't matter how that money was set up, either - gold, silver, or paper, a bigger economy needs more of the medium of exchange, or trade will be choked off by the lack of it.

The argument is that increasing the supply of a medium of exchange does not lead to economic growth. That money supplies have grown as economies have grown does not mean the money supply has anything to do with that growth. A bigger economy does not need more of a medium of exchange. That is sheer nonsense. If the supply of the medium of exchange is constant, prices will simply fall to reflect to larger size of the economy. The purchasing power of each unit of money will increase, and less units of the money will be required to achieve the same ends.

Banks aren't the recipients of the loans they create. The businesses that take out the loans are the ones that gain access to the new money, not the bank, and they are under an obligation to repay that loan. You are inventing a scenario in order to fit your "the first ones to get new money benefit the most" idea. The liability on the bank's books is very real and very immediate (they have given the borrower money); but the asset on the bank's books is the expectation of being repaid, which can very easily fall through.

When a bank extends a loan, they are putting themselves on the hook. They extend credit for the borrower, but if borrower fails to pay them back, it's the bank that takes the hit. Plus, there are other costs to creating a loan - the cost of borrowing reserves, and the cost of meeting capital requirements. What makes you think that banks get the money they create before anybody else?

The creation of loans from nothing allows banks to profit from nothing. They have given the borrower money that didn't exist before. The banks have no less money than before. But now they have a stream of income via interest, created out of thin air. You bet they benefit. You then totally ignored the rest of the post. Do the poor get the bulk of loans created by credit expansion? No. Those with more wealth are able to take out higher quantities of loans, and thus benefit at the expense of the poor and working classes who do not have the ability to take out such loans.

Competition works to keep monopolies from inflating prices. But competition between grocers or wheat farmers doesn't keep oil prices from going up. I thought that went without saying.

Now you are being obtuse. I never said competition between grocers and wheat farmers keep oil prices from going up.

Creating new demand is what drives economic growth. And it is possible to create new demand simply by putting more dollars in the hands of people who are very likely to spend them. ...

You cannot create demand unless you first create economic growth. Demand and supply are two sides of the same coin. If you create more dollars and give it to person A, all you are doing is transferring purchasing power from everyone else to person A and other earlier receivers of the new money.

Production does increase when businesses take out loans--problem is that when loans are financed by an expansion of the money supply, and not real savings, the result will not be economic growth, but waste. You saw this with the housing market. My arguments are fully supported by the data and by logic. You simply ignore all of it and stick to your religious theory.

And you have yet to answer the question. What has caused prices throughout the U.S. economy to rise over the past several decades? Why are prices higher now? What is the cause? You keep ignoring the question.

Further, you deny that a growth in the money supply is what causes hyperinflation? Really? What do you think causes hyperinflation? Your posts get more divorced from reality each time you create them. The lengths you have to go to support your false premises is astounding.

 

[JohnfrmClevelan]

In the context of this discussion, saying a larger money supply "allows for growth without deflation" is no different than what I have been saying all along.

No, you have held that increasing the money supply causes inflation. Big difference. That's akin to saying that, because guardrails keep cars from careening completely off the road, it is the lack of guardrails that causes cars to go off the road. Do you see the difference?

The argument is that increasing the supply of a medium of exchange does not lead to economic growth. That money supplies have grown as economies have grown does not mean the money supply has anything to do with that growth. A bigger economy does not need more of a medium of exchange. That is sheer nonsense. If the supply of the medium of exchange is constant, prices will simply fall to reflect to larger size of the economy. The purchasing power of each unit of money will increase, and less units of the money will be required to achieve the same ends.

My argument, and the topic of the thread, is that more demand leads to economic growth. And, that increased demand can be effected by creating new dollars and putting them into the hands of consumers. Increasing the money supply is merely a by-product of that. We could also increase the money supply by giving Bill Gates a trillion dollars, but that would not be likely to result in a significant increase in demand. So it's not about the money supply, except to say that an increase in the money supply is necessary to accommodate growth (without deflation).

The creation of loans from nothing allows banks to profit from nothing. They have given the borrower money that didn't exist before. The banks have no less money than before. But now they have a stream of income via interest, created out of thin air. You bet they benefit. You then totally ignored the rest of the post. Do the poor get the bulk of loans created by credit expansion? No. Those with more wealth are able to take out higher quantities of loans, and thus benefit at the expense of the poor and working classes who do not have the ability to take out such loans.

Producing loans is the business that banks are in. Is it wrong that they profit from that service? They take risks, they perform services - they earn their money. A laborer produces labor out of thin air. A farmer produces crops from little more than effort and time. Everybody that produces something either creates something "out of thin air" or otherwise adds value "out of thin air." The rest of your post is just political silliness - banks don't make loans at the expense of the poor. In fact, the poor (unemployed) have been waiting for the day when businesses start taking out more loans and getting the economy back on its feet again. Labor benefits when businesses take out loans, because businesses need labor in order to repay those loans.

 

[JohnfrmClevelan]

(cont.)

Now you are being obtuse. I never said competition between grocers and wheat farmers keep oil prices from going up.

No, but you intimated that that was my argument. We all know that the price of oil affects the price of everything that has to be transported. Arguing that competition doesn't keep prices down because, "look, prices do go up!" is, at best, disingenuous.

You cannot create demand unless you first create economic growth. Demand and supply are two sides of the same coin. If you create more dollars and give it to person A, all you are doing is transferring purchasing power from everyone else to person A and other earlier receivers of the new money.

You never did explain how sustainable growth happens in your system. And I don't think you can. You always seem to want to borrow against demand, which is just going to lower demand in the short term, at the very least. That has always been the gaping hole in Austrian economics - their treatment of savings. You lower demand in order to finance loans with "real savings," and somehow expect an economy to grow within a fixed money supply, against all logical incentives.

Production does increase when businesses take out loans--problem is that when loans are financed by an expansion of the money supply, and not real savings, the result will not be economic growth, but waste. You saw this with the housing market. My arguments are fully supported by the data and by logic. You simply ignore all of it and stick to your religious theory.

What about every other business? Because, like it or not, every bank loan in this country (and most others) is created "out of thin air." And it has for quite some time. So where is the bubble in agriculture/manufacturing/chemicals/retail/electronics/everything else? Because any business that uses credit is using these "thin air" dollars. Imagep's business runs on "thin air dollars."

And you have yet to answer the question. What has caused prices throughout the U.S. economy to rise over the past several decades? Why are prices higher now? What is the cause? You keep ignoring the question.

I have answered this question a number of times already. Prices go up for lots of reasons. Some things are truly limited - real estate, for example. The price of oil has gone up over the years. Until a short time ago, labor was still in demand, and wages rose steadily.

Do you even factor in these things, or is the money supply your one and only cause of inflation? And if you do factor in other causes, how do you determine that an increase in the money supply is causing additional inflation, over and above inflation caused by shortages and leverage?

Further, you deny that a growth in the money supply is what causes hyperinflation? Really? What do you think causes hyperinflation? Your posts get more divorced from reality each time you create them. The lengths you have to go to support your false premises is astounding.

Yes, I absolutely deny it, because it's not the cause of any hyperinflation that I have ever read up on. The main cause of hyperinflation is normally a large drop in production. Printing lots of money is a response that comes later. You see a lot of hyperinflation after wars, for example.

If you are right, why aren't we experiencing even moderate inflation, let alone hyperinflation? Why isn't Japan?

 

[Lakryte]

No, you have held that increasing the money supply causes inflation. Big difference. That's akin to saying that, because guardrails keep cars from careening completely off the road, it is the lack of guardrails that causes cars to go off the road. Do you see the difference?

I have held that increasing the money supply can cause higher prices. Would there be growth without deflation, in your opinion, without an increase in the money supply?

My argument, and the topic of the thread, is that more demand leads to economic growth. And, that increased demand can be effected by creating new dollars and putting them into the hands of consumers. Increasing the money supply is merely a by-product of that. We could also increase the money supply by giving Bill Gates a trillion dollars, but that would not be likely to result in a significant increase in demand. So it's not about the money supply, except to say that an increase in the money supply is necessary to accommodate growth (without deflation).

Money is not demand. The supply of goods and services in the economy is demand. In order to increase aggregate demand, you must first increase the supply of goods and services in the economy. Creating money doesn't do that. Yes, in order to have economic growth without falling prices you will have to print money. That is something we agree on. But falling prices are precisely what allows everyone to benefit from economic growth--especially the lower classes. Propping them up merely redistributes wealth from poor to rich.

Producing loans is the business that banks are in. Is it wrong that they profit from that service? They take risks, they perform services - they earn their money. A laborer produces labor out of thin air. A farmer produces crops from little more than effort and time. Everybody that produces something either creates something "out of thin air" or otherwise adds value "out of thin air." The rest of your post is just political silliness - banks don't make loans at the expense of the poor. In fact, the poor (unemployed) have been waiting for the day when businesses start taking out more loans and getting the economy back on its feet again. Labor benefits when businesses take out loans, because businesses need labor in order to repay those loans.

When they profit by creating money out of thin air, then yes that is wrong. And since purchasing power cannot be created out of thin air, whoever gets the newly created money is essentially robbing those who do not receive the newly created money of their purchasing power. Purchasing power is transferred to the wealthy receivers of the loans from those who receive the newly created money last, such as those on fixed incomes. Furthermore, A laborer does not produce labor out of thin air. A laborer produces labor with his or her body and mind. That you think the money and labor are analogous is humorous.

 

[Lakryte]

(cont.)



No, but you intimated that that was my argument. We all know that the price of oil affects the price of everything that has to be transported. Arguing that competition doesn't keep prices down because, "look, prices do go up!" is disingenuous.

There is nothing disingenuous about pointing to actual price conditions to refute your claims. The reality is that the price level has risen dramatically over the past several decades, despite competition existing. It is impossible for oil and the price of everything else to increase without an increase in the money supply. Are you arguing that the reason for overall price inflation of the past century is because of oil? Explain, then, why oil prices have risen consistently as well?

You never did explain how sustainable growth happens in your system...

Yes I did, multiple times. Sustainable growth happens via production, technological innovation, the division of labor, and the investment of resources into capital and cheaper means of production.

What about every other business? Because, like it or not, every bank loan in this country (and most others) is created "out of thin air." And it has for quite some time. So where is the bubble in agriculture/manufacturing/chemicals/retail/electronics/everything else? Because any business that uses credit is using these "thin air" dollars. Imagep's business runs on "thin air dollars."

That is not entirely true. To the extent that loans are backed by real savings, the distortions will have less of an effect. It is no surprise that recessions and busts consistently follow the peak of the ratio between the money supply and savings. The inflation caused by the expansion of the money supply does not effect all prices equally. There is arguably a large bubble forming in agricultural land, for example. A bubble already burst in the dot-com boom and bust of the early 2000s. It is not true that any business that uses credit necessarily will form a bubble and then bust.

I have answered this question a number of times already. Prices go up for lots of reasons. Some things are truly limited - real estate, for example. The price of oil has gone up over the years. Until a short time ago, labor was still in demand, and wages rose steadily.

Do you even factor in these things, or is the money supply your one and only cause of inflation? And if you do factor in other causes, how do you determine that an increase in the money supply is causing additional inflation, over and above inflation caused by shortages and leverage?

You are not answering the question. I am asking what specifically caused prices throughout the U.S. economy to rise over the past several decades. Not what "could" cause prices to rise, but an explanation of the actual continual rise in prices witnessed in U.S. history. Do you believe such a rise would have been possible without an increase in the money supply? The answer is clearly no, which is why you continually skirt around the question.

Yes, I absolutely deny it, because it's not the cause of any hyperinflation that I have ever read up on. The main cause of hyperinflation is normally a large drop in production. Printing lots of money is a response that comes later. You see a lot of hyperinflation after wars, for example.

If you are right, why aren't we experiencing even moderate inflation, let alone hyperinflation? Why isn't Japan?

Do explain why every single hyperinflation is preceded by a massive increase in the money supply. A few examples for you: the Weimar Republic, Argentina, Hungary, Zimbabwe...do I really need to explain this to you? Your notion that hyperinflation is caused by a large drop in production and then the response is printing money is laughable nonsense. You see hyperinflation after wars precisely because the government vastly expanded the money supply to pay for the wars. If you truly believe that hyperinflation has nothing to do with the money supply, you are a fool. Sorry, but that's the truth.

Why would the U.S. be experiencing hyperinflation? Why would Japan? The increases in the money supply in both countries haven't even come close to those that would cause hyperinflation. Over the past several decades, Japan has actually increased it's money supply at a much slower rate than most of the rest of the developed world. And surprise surprise, the price level in Japan has remained relatively stable. Furthermore, the unusually high excess reserves of banks in the U.S. are canceling out any significant inflation, and a stronger dollar relative to other currencies is making imports cheaper, further putting downward pressure on prices.

Again, your simplistic understanding of Austrian economics is that creation of the money supply always leads to an increase in prices. Nobody has ever argued that.

 

[Fenton]

Demand is the only thing that has ever or will ever grow an economy. If nobody can afford what you're selling, no amount of tax cuts for rich people are going to make a nation prosperous.

There's the rub. Progressives and pro-stimulus Keynesians think that the Government should intervene directly and increase demand via fiscal stimulus when the private sector is in a rut.

Problem is it DOESN'T work. In fact, this purely ideological approach to righting the economies of the world has turned out to be down right dangerous and destructive.

Its been 6 years and we've added 8 Trillion to our debt and 4 Trillion in increased liquidity via QE with over 80 % of that new liquidity liquidity sitting idle on the FEDs books marked as " Excess reserves. " Prior to 2008 Banks would never let a bunch of excess currency sitting around earning nothing. They lend it out to Banks on the overnight markets or pushed it out into the economy where it could earn them money and grow the economy.

And we've averaged around 2 % GDP over the last 6 years with median income levels that still haven't caught up to 2007 levels. And that's not the only indicators that show just how anemic this recovery has become.

The fact that so much of the FEDs new liquidity sits idle 6 years in is proof of just how weak our economy is. After 6 years of massive spending there's no substantial demand for consumer credit.

Japan stuck to the Keynesian play book by the letter increasing spending to " increase aggregate " demand back in the 90's. Between 1992 and 1995 Japan introduced six stimulus programs totaling 65.5 trillion yen. Before the decade was out another four stimulus packages were introduced. By the end of the 90s ten stimulus packages, totaling over 100 trillion yen.

When Shinzō Abe unveiled his 3 pronged initiative to combat two decades of deflation and stagnant economic growth there was a positive response from the US FED, the IMF and Central banks all over the world ( and Paul Krugman ). If Abe was successful, then there would be no further debate over the effectiveness of Stimulus. But it wasn't successful, and the ideologues on the Left have been trying to mitigate away the failure of Abenomics ever since.


Now the primary consumer of Japans debt is the BoJ. 40 % of Government revenues goes towards paying the interest on Japans outstanding debt ( with rates close to zero ) and in order to boost domestic investment from outside Governments or Corporations they would have to increase interest rates. A 2 % increase on their 10 year Treasuries would mean that the Japanese Government would have to use 100 % of it's revenue to pay off its debt service.

Wages adjusted for inflation have dropped the most in over 5 years and the savings rate dropped to a negative 1.3 %. Real earnings fell 4.3 % and the best Abe can come up with is to plead with Company's to boost wages.

What has to happen before those on the left finally admit that they have no idea what they're doing ?

 

[JP Hochbaum]

Money is not demand. The supply of goods and services in the economy is demand. In order to increase aggregate demand, you must first increase the supply of goods and services in the economy. Creating money doesn't do that.

Money is what represents demand, you can't have demand REALIZED without the ability to buy things, a la having money. Money is tied to demand and demand is tied to money. Supply comes after demand, otherwise they are goods sitting on shelves collecting dust. Money will sit and collect dust without a supply of goods to buy, and supplies will collect dust without demand or money to represent that demand.

 

[Lakryte]

Money is what represents demand, you can't have demand REALIZED without the ability to buy things, a la having money. Money is tied to demand and demand is tied to money. Supply comes after demand, otherwise they are goods sitting on shelves collecting dust. Money will sit and collect dust without a supply of goods to buy, and supplies will collect dust without demand or money to represent that demand.

Money merely represents the supply of goods/services, things that people actually want and use, and it is those goods and services that represent demand. That is what you are missing. Supply (of goods and services) is tied to demand and demand is tied to supply. Money merely exists as a medium used to exchange whatever supply exists. Demand is completely limited by supply, and creating more money does not create more supply. Hence why we have constant increases in the price level, year after year.

That not a single explanation of why prices have risen so consistently in the aggregate over the past century has been put forth is very telling. Without an increase in the money supply, prices would not have risen in the aggregate. It would not have been possible.

 

[JP Hochbaum]

Money merely represents the supply of goods/services, things that people actually want and use, and it is those goods and services that represent demand.

So in this world savings don't exist? Or investments? You just went full circle here.

That is what you are missing. Supply (of goods and services) is tied to demand and demand is tied to supply. Money merely exists as a medium used to exchange whatever supply exists. Demand is completely limited by supply, and creating more money does not create more supply. Hence why we have constant increases in the price level, year after year.

You are so very confused here. Demand is limited by ability to buy, not by supply. THis is why you see inflation! If people don't have enough supply to purchase with their money, inflation occurs. And secondly what inflation!?!?!?!

That not a single explanation of why prices have risen so consistently in the aggregate over the past century has been put forth is very telling. Without an increase in the money supply, prices would not have risen in the aggregate. It would not have been possible.

M1 and CPI have a negative correlation!

 

[JohnfrmClevelan]

That not a single explanation of why prices have risen so consistently in the aggregate over the past century has been put forth is very telling. Without an increase in the money supply, prices would not have risen in the aggregate. It would not have been possible.

There have been explanations. You just don't agree with them, so you have decided that they do not exist. And even if there had been no explanations put forth, that would NOT be anything close to proof that an increase in the money supply causes inflation.

***************

There have been more dollars earned than there have been dollars redeemed - we know this because there are trillions of dollars that have been saved (as bonds), and trillions more that are sitting around in various forms (cash, bank deposits, etc.). That doesn't mean that there is a similar amount of production sitting on the shelves, waiting to be purchased, but there is certainly some. And there is also plenty of potential demand (saved dollars) that can be spent. But the connection between the product on the shelf and it's corresponding demand isn't as immediate as these arguments imply. There is some amount of excess supply and some amount of excess money at all times, and it is simply not important, nor is it realistic, that the dollars match up perfectly. So when the government creates some new dollars and spends them into the economy, it just isn't going to be a big shock to the system. There is plenty of slack in there, and prices aren't going to be affected under normal circumstances. Dollars are being lost to savings at about the same rate anyway, so demand stays pretty consistent.

 

[Lakryte]

So in this world savings don't exist? Or investments? You just went full circle here.

I'm curious. How on earth do you infer that from what I said?

You are so very confused here. Demand is limited by ability to buy, not by supply. THis is why you see inflation! If people don't have enough supply to purchase with their money, inflation occurs. And secondly what inflation!?!?!?!

The ability to buy is limited by supply. You are just begging the question. Money merely exists as a medium used to exchange whatever supply exists, and creating more money does not create more supply.

M1 and CPI have a negative correlation!

View attachment 67181291

Since 1915, the price level has increased by more than 2,200%. Since 1965, it has increased by nearly 650%, since 1990 by nearly 80%, and in the past 15 years alone the price level has increased by over 35%. And that is using the CPI, which many argue underestimates inflation.

What inflation? Really? And as to your chart, the vast majority of money is created via the banking system and is counted in M2. M2 and inflation are highly correlated, and this applies not only to the United States but virtually every country in the world. In order to accept your theories, you have to ignore mountains of data.

As to your graph, it is also worth noting M1 does correlate with higher prices. The data you present is a false comparison. The increase in money supply does not result in an instant increase in prices. There is a time lag, generally considered between 12-18 months. Taking that into consideration, you can definitely see a correlation.
http://inflationdata.com/Inflation/Inflation/Money_Supply_and_Inflation.asp

I highly suggest reading the above article. It does a great job at explaining the times when CPI and M1 do not match up as nicely. The problem is that CPI does not measure all prices (nor should it, as that is not it's purpose). An increase in the supply of money might lead to rises in stock prices, for example, or real estate. And that is precisely where the increases have gone. If CPI does not increase as a result of money creation, then there will be another asset bubble. That has been true throughout history.

 

[Lakryte]

There have been explanations. You just don't agree with them, so you have decided that they do not exist. And even if there had been no explanations put forth, that would NOT be anything close to proof that an increase in the money supply causes inflation.

***************

There have been more dollars earned than there have been dollars redeemed - we know this because there are trillions of dollars that have been saved (as bonds), and trillions more that are sitting around in various forms (cash, bank deposits, etc.). That doesn't mean that there is a similar amount of production sitting on the shelves, waiting to be purchased, but there is certainly some. And there is also plenty of potential demand (saved dollars) that can be spent. But the connection between the product on the shelf and it's corresponding demand isn't as immediate as these arguments imply. There is some amount of excess supply and some amount of excess money at all times, and it is simply not important, nor is it realistic, that the dollars match up perfectly. So when the government creates some new dollars and spends them into the economy, it just isn't going to be a big shock to the system. There is plenty of slack in there, and prices aren't going to be affected under normal circumstances. Dollars are being lost to savings at about the same rate anyway, so demand stays pretty consistent.

No, there have not. All alleged explanations have been completely general, with absolutely no supporting data provided. I did not take no explanations as proof of anything, so that point is moot and irrelevant.

Dollars are not demand. Supply of goods and services is what constitutes demand, and dollars (any money) are merely mediums used in the exchange of these goods and services. Triple the money supply and that does not triple demand in any way. There is no correct amount of dollars that matches supply. There can never be excess money or a shortage of money. If there are 100 trillion dollars circulating or 1 trillion, it doesn't matter. The economy will function the same either way. In the former, prices will merely be higher to reflect the larger amount of money.

 

[JP Hochbaum]

I'm curious. How on earth do you infer that from what I said?


The ability to buy is limited by supply. You are just begging the question. Money merely exists as a medium used to exchange whatever supply exists, and creating more money does not create more supply.



Since 1915, the price level has increased by more than 2,200%. Since 1965, it has increased by nearly 650%, since 1990 by nearly 80%, and in the past 15 years alone the price level has increased by over 35%. And that is using the CPI, which many argue underestimates inflation.

What inflation? Really? And as to your chart, the vast majority of money is created via the banking system and is counted in M2. M2 and inflation are highly correlated, and this applies not only to the United States but virtually every country in the world. In order to accept your theories, you have to ignore mountains of data.

My argument is that more money creates more demand. And that when that demand is created supply increases.

And why would you include a broader definition of money in M2 that includes savings and investments? By definition they aren't being spent.

 

[Lakryte]

My argument is that more money creates more demand. And that when that demand is created supply increases.

I understand that. But you have failed to prove it either with empirical data or reason. Can you explain why the price level since 1915 has increased by more than 2000%?

And why would you include a broader definition of money in M2 that includes savings and investments? By definition they aren't being spent.

You missed my edit above. It ultimately doesn't matter.

EDIT: I also realize I was confusing M1 with MB. I thought your chart did not include demand deposits. My mistake. The larger point is the correlation still exists.

 

[JP Hochbaum]

I understand that. But you have failed to prove it either with empirical data or reason. Can you explain why the price level since 1915 has increased by more than 2000%?


You missed my edit above. It ultimately doesn't matter.

EDIT: I also realize I was confusing M1 with MB. I thought your chart did not include demand deposits. My mistake. The larger point is the correlation still exists.

Cost push inflation. Rising food prices due to scarcity and over population, wage increases, there are probably hundreds of things I could list that cause prices to rise outside of money growth.

 

[JohnfrmClevelan]

I'm curious. How on earth do you infer that from what I said?


The ability to buy is limited by supply. You are just begging the question. Money merely exists as a medium used to exchange whatever supply exists, and creating more money does not create more supply.



Since 1915, the price level has increased by more than 2,200%. Since 1965, it has increased by nearly 650%, since 1990 by nearly 80%, and in the past 15 years alone the price level has increased by over 35%. And that is using the CPI, which many argue underestimates inflation.

What inflation? Really? And as to your chart, the vast majority of money is created via the banking system and is counted in M2. M2 and inflation are highly correlated, and this applies not only to the United States but virtually every country in the world. In order to accept your theories, you have to ignore mountains of data.

As to your graph, it is also worth noting M1 does correlate with higher prices. The data you present is a false comparison. The increase in money supply does not result in an instant increase in prices. There is a time lag, generally considered between 12-18 months. Taking that into consideration, you can definitely see a correlation.
InflationData: M1 Money Supply and Inflation

I highly suggest reading the above article. It does a great job at explaining the times when CPI and M1 do not match up as nicely. The problem is that CPI does not measure all prices (nor should it, as that is not it's purpose). An increase in the supply of money might lead to rises in stock prices, for example, or real estate. And that is precisely where the increases have gone. If CPI does not increase as a result of money creation, then there will be another asset bubble. That has been true throughout history.

I'd like some of whatever this guy was smoking when he imagined that he saw a correlation in that data. You have to want to see something very badly to call that a correlation. And when nothing else he did made the graphs line up, he made up excuses for the lack of correlation.

And why on Earth would it be logical that there was a 12-18 month lag? Who sits on money that long?

Your "mountains of data" are worthless. You want to see mountains. I see piles of garbage.

So to date, you are hanging your argument on the fact that small amounts of inflation exist, but completely reject any and all explanations for that inflation other that an increase in the money supply. Cost-push, shortages, and leverage? Nah - why would those things lead to higher prices? :doh

 

[JohnfrmClevelan]

No, there have not. All alleged explanations have been completely general, with absolutely no supporting data provided. I did not take no explanations as proof of anything, so that point is moot and irrelevant.

Dollars are not demand. Supply of goods and services is what constitutes demand, and dollars (any money) are merely mediums used in the exchange of these goods and services. Triple the money supply and that does not triple demand in any way. There is no correct amount of dollars that matches supply. There can never be excess money or a shortage of money. If there are 100 trillion dollars circulating or 1 trillion, it doesn't matter. The economy will function the same either way. In the former, prices will merely be higher to reflect the larger amount of money.

How are the $100 trillion distributed? If we add $99 trillion by giving it all to Bill Gates, and he saves it all, then prices won't be affected at all. That's why you can't just divide the number of dollars by the amount of goods and think you have determined the price level.

But distribute, say, $100 billion among the lowest 100 million Americans, and there will be more spending. To think otherwise is ridiculous. In your world, stores would just jack up prices and sell the same amount of goods. In the real world, producers adjust to meet demand, and we sell more goods.

 

[Lakryte]

Cost push inflation. Rising food prices due to scarcity and over population, wage increases, there are probably hundreds of things I could list that cause prices to rise outside of money growth.

Food prices are rising due to scarcity and overpopulation? Really? Since 1915 prices have gone up over 2000%. The population of the U.S. has not increased by nearly that amount. On top of that, food production has increased by a massive amount. Compared to 1950, farmers produce 262% more food using 2% less inputs (such as labor, fertilizer, etc). How is that a recipe for scarcity and price inflation? Your theory that scarcity of food has led to massive increases in the price level is simply absurd.

Furthermore, if food prices are rising, why would that cause the cost of other items in CPI to increase as well? If people are spending more on food, they would have less money to spend on other consumer items, meaning other prices would go down. Yet everything has gone up. So that can't possibly be the reason.

As to wage increases, wage increases are price increases. They are part of the bigger picture of rising prices. So to say prices are increasing because wages are increasing is circular reasoning that begs the question. Nominal wages would not have increased by any significant amount either if it were not for the increases in the money supply we have seen throughout the past century.

 

[Lakryte]

I'd like some of whatever this guy was smoking when he imagined that he saw a correlation in that data. You have to want to see something very badly to call that a correlation. And when nothing else he did made the graphs line up, he made up excuses for the lack of correlation.

And why on Earth would it be logical that there was a 12-18 month lag? Who sits on money that long?

Your "mountains of data" are worthless. You want to see mountains. I see piles of garbage.

So to date, you are hanging your argument on the fact that small amounts of inflation exist, but completely reject any and all explanations for that inflation other that an increase in the money supply. Cost-push, shortages, and leverage? Nah - why would those things lead to higher prices? :doh

The lag has nothing to do with people not spending money. The trend is very clear. His "excuses" are perfectly valid and empirically supported. If you take issue with them, explain why.

Cost-push inflation just begs the question. What caused the costs to go up in the first place? The price level has increased by over 2000% since 1915. Yet has supply since then decreased by 2000%? No, to the contrary in fact. Supply of goods and services has grown immensely since 1915. Your explanations don't hold any water.

 

[JP Hochbaum]

Food prices are rising due to scarcity and overpopulation? Really? Since 1915 prices have gone up over 2000%. The population of the U.S. has not increased by nearly that amount. On top of that, food production has increased by a massive amount. Compared to 1950, farmers produce 262% more food using 2% less inputs (such as labor, fertilizer, etc). How is that a recipe for scarcity and price inflation? Your theory that scarcity of food has led to massive increases in the price level is simply absurd.

Furthermore, if food prices are rising, why would that cause the cost of other items in CPI to increase as well? If people are spending more on food, they would have less money to spend on other consumer items, meaning other prices would go down. Yet everything has gone up. So that can't possibly be the reason.

As to wage increases, wage increases are price increases. They are part of the bigger picture of rising prices. So to say prices are increasing because wages are increasing is circular reasoning that begs the question. Nominal wages would not have increased by any significant amount either if it were not for the increases in the money supply we have seen throughout the past century.

I never said food made up 2000% of the price increase. I said it was a part of many items. Oil is also a major factor as that is limited in supply as well as housing.

 

[Lakryte]

How are the $100 trillion distributed? If we add $99 trillion by giving it all to Bill Gates, and he saves it all, then prices won't be affected at all. That's why you can't just divide the number of dollars by the amount of goods and think you have determined the price level.

But distribute, say, $100 billion among the lowest 100 million Americans, and there will be more spending. To think otherwise is ridiculous. In your world, stores would just jack up prices and sell the same amount of goods. In the real world, producers adjust to meet demand, and we sell more goods.

Irrelevant question. My point in bold had nothing to do with adding money to an economy or changing the distribution. To reiterate, if there are 100 trillion dollars circulating or 1 trillion, it doesn't matter. The economy will function the same either way. In the former, prices will merely be higher to reflect the larger amount of money. And this is exactly what we have seen throughout history.

 

[Lakryte]

I never said food made up 2000% of the price increase. I said it was a part of many items. Oil is also a major factor as that is limited in supply as well as housing.

Your answer to why prices (including food) increased was "partially because food prices increased." Do you not see how that is circular reasoning? You are arguing prices have increased because prices have increased.

 

[JP Hochbaum]

When it comes to inflation you are exemplifying the faulty thinking of ceterus peribus that they use in econ 101 just to simplify equations for people. But they are careful to mention that all things being equal never actually happens:

Money Growth Does Not Cause Inflation! - Forbes

In order for prices to increase in MV=PY, yield has to remain constant, you can't actually ever assume that to be the case.

 

[ttwtt78640]

That may be using some faulty logic. The cost of the vehicle (your car payment) is but part of one's transportation expenses. If your monthly motor fuel cost decreases then you can spend that "savings" on a vehicle upgrade (higher car payment) without much change to your current total transportation expense. Since motor fuel costs also affect the prices of many other things those costs will also not likely rise as fast (or may actually fall) further helping your wages go a bit further. It is a good bet that this lower oil price situation is temporary and may well not last as long as your new higher car payments will - if (when?) that happens this trend will stop (or reverse).