Josh, thanks for the great explaination on your views of inflation. I’m still trying to get my head around it but your posts have been a big help. There’s one part of your post that I’m a little unclear about:
“If that borrowing is put to productive use, its not inflationary. Say I borrow money to build a factory which then improves productive output or fosters competition. That doesn’t tend to be inflationary.”
“However if I borrow money and pour ever more of it into something like housing, where the population is growing slowly or not at all, that becomes inflationary as ever more dollars chase ever fewer, or stagnant amount of resources.”
When you use the term “inflationary” above, are you actually talking about prices going up (rather than money in the system)? That seems to make sense to me. Here’s my interpretation of it:
It seems like once you borrow money, then you’ve added to the amount of money in the system. That, in itself is inflation. But if you use that money to produce products, then you’ve added another source of competition for the consumer’s money. This added competition for the consumer’s money tends to balance out the additional money supply. So that’s why this type of inflation doesn’t tend to drive up prices?
If you borrow money and buy a house with it, you’re also adding money to the system. This is also inflation. But buying a house doesn’t produce any products that consumers want. There is no additional competition for the consumer’s money. This imbalance leads to prices going up?
