[quote=Arraya]There is no inflation. Tradition measures of money supply don’t tell the whole story. Until deflation runs it’s coarse there no threat of inflation. We are few years from that. The fed wishes it could inflate and people will be begging for it[/quote]
The growth rate of the money supply used to be a good predictor of inflation. Milton Friedman championed monetarism in the sixties, seventies, and eighties and challenged the then-dominant Keynesian philosophy among economists. His theory could be summarized by the formula MV = PQ, where M = money supply, V = velocity (speed at which money changes hands), and P = price level, Q = quantity of goods and services produced. Since Q and V were largely stable, any change in M by the central bank would immediately translate into a corresponding change in Prices.
But with financial innovations, new definitions of money, and, more recently, changes in people’s willingness to hold liquidity (at .35% interest on your certificate of deposit, why bother putting your money in the bank), the M and V became less reliable.
So monetarism is dead, or at least not relevant to our current economy, and Arraya right about the current deflationary atmosphere in the face of rapidly growing money supply.
