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Rich ToscanoKeymaster[quote=jeeman]Money supply + credit = inflation.
[/quote]No. You cannot sum money and credit; they are two entirely different things. I’ve been over this many times… see the “Credit Deflation” part of this article: http://www.voiceofsandiego.org/toscano/article_8029a8dd-60eb-530f-8f60-25b75ea31527.html
[quote=jeeman]Look at 1996-2008: the money supply was fairly constant, hovering about $800B, but credit was getting looser and looser, increasing money velocity, and we had inflation.
[/quote]Money supply was NOT constant from 1996-2008. See this graph:
Broad money supply more than doubled over that period.
Rich ToscanoKeymaster[quote=jeeman]Money supply + credit = inflation.
[/quote]No. You cannot sum money and credit; they are two entirely different things. I’ve been over this many times… see the “Credit Deflation” part of this article: http://www.voiceofsandiego.org/toscano/article_8029a8dd-60eb-530f-8f60-25b75ea31527.html
[quote=jeeman]Look at 1996-2008: the money supply was fairly constant, hovering about $800B, but credit was getting looser and looser, increasing money velocity, and we had inflation.
[/quote]Money supply was NOT constant from 1996-2008. See this graph:
Broad money supply more than doubled over that period.
Rich ToscanoKeymaster[quote=jeeman]Money supply + credit = inflation.
[/quote]No. You cannot sum money and credit; they are two entirely different things. I’ve been over this many times… see the “Credit Deflation” part of this article: http://www.voiceofsandiego.org/toscano/article_8029a8dd-60eb-530f-8f60-25b75ea31527.html
[quote=jeeman]Look at 1996-2008: the money supply was fairly constant, hovering about $800B, but credit was getting looser and looser, increasing money velocity, and we had inflation.
[/quote]Money supply was NOT constant from 1996-2008. See this graph:
Broad money supply more than doubled over that period.
August 6, 2010 at 10:56 AM in reply to: File under Bizarre: “Housing Markets that Will Be Strongest by 2014” #587452Rich ToscanoKeymasterIt’s pretty impressive that they can predict price changes four years from now within 1/10th of a percent.
August 6, 2010 at 10:56 AM in reply to: File under Bizarre: “Housing Markets that Will Be Strongest by 2014” #587544Rich ToscanoKeymasterIt’s pretty impressive that they can predict price changes four years from now within 1/10th of a percent.
August 6, 2010 at 10:56 AM in reply to: File under Bizarre: “Housing Markets that Will Be Strongest by 2014” #588079Rich ToscanoKeymasterIt’s pretty impressive that they can predict price changes four years from now within 1/10th of a percent.
August 6, 2010 at 10:56 AM in reply to: File under Bizarre: “Housing Markets that Will Be Strongest by 2014” #588188Rich ToscanoKeymasterIt’s pretty impressive that they can predict price changes four years from now within 1/10th of a percent.
August 6, 2010 at 10:56 AM in reply to: File under Bizarre: “Housing Markets that Will Be Strongest by 2014” #588495Rich ToscanoKeymasterIt’s pretty impressive that they can predict price changes four years from now within 1/10th of a percent.
Rich ToscanoKeymasterOK, I misunderstood you JP.
There are two different things, the amount of money, and the so-called “velocity” at which it is spent. If you multiply those two things together, you get the total amount of spending.
The monetary aggregates eg M2 do not make any attempt to measure velocity. They measure the money that is out there for spending. Whether it is spent, and how fast, is another question.
Many things can affect velocity such that, all other things equal, the same amount of money in the economy could lead to different rates of spending, and different rates of inflation. For instance, if people are more cautious and worried about the future, they would tend to increase the amount they wanted to save, which would reduce velocity (that’s happening right now). An example of something that might increase velocity would be concerns about the future purchasing power of the currency, which would encourage people to spend the money faster than they would have otherwise.
Both are important things to consider in your analysis. The reason that I have tended to focus more on money supply is that the various factors that influence velocity tend to be more short-lived, whereas changes to the money supply are more enduring. This is why money supply is a big factor in long-term inflation prospects, even if it is overwhelmed by velocity considerations over shorter timeframes.
Hope that helps.
Rich ToscanoKeymasterOK, I misunderstood you JP.
There are two different things, the amount of money, and the so-called “velocity” at which it is spent. If you multiply those two things together, you get the total amount of spending.
The monetary aggregates eg M2 do not make any attempt to measure velocity. They measure the money that is out there for spending. Whether it is spent, and how fast, is another question.
Many things can affect velocity such that, all other things equal, the same amount of money in the economy could lead to different rates of spending, and different rates of inflation. For instance, if people are more cautious and worried about the future, they would tend to increase the amount they wanted to save, which would reduce velocity (that’s happening right now). An example of something that might increase velocity would be concerns about the future purchasing power of the currency, which would encourage people to spend the money faster than they would have otherwise.
Both are important things to consider in your analysis. The reason that I have tended to focus more on money supply is that the various factors that influence velocity tend to be more short-lived, whereas changes to the money supply are more enduring. This is why money supply is a big factor in long-term inflation prospects, even if it is overwhelmed by velocity considerations over shorter timeframes.
Hope that helps.
Rich ToscanoKeymasterOK, I misunderstood you JP.
There are two different things, the amount of money, and the so-called “velocity” at which it is spent. If you multiply those two things together, you get the total amount of spending.
The monetary aggregates eg M2 do not make any attempt to measure velocity. They measure the money that is out there for spending. Whether it is spent, and how fast, is another question.
Many things can affect velocity such that, all other things equal, the same amount of money in the economy could lead to different rates of spending, and different rates of inflation. For instance, if people are more cautious and worried about the future, they would tend to increase the amount they wanted to save, which would reduce velocity (that’s happening right now). An example of something that might increase velocity would be concerns about the future purchasing power of the currency, which would encourage people to spend the money faster than they would have otherwise.
Both are important things to consider in your analysis. The reason that I have tended to focus more on money supply is that the various factors that influence velocity tend to be more short-lived, whereas changes to the money supply are more enduring. This is why money supply is a big factor in long-term inflation prospects, even if it is overwhelmed by velocity considerations over shorter timeframes.
Hope that helps.
Rich ToscanoKeymasterOK, I misunderstood you JP.
There are two different things, the amount of money, and the so-called “velocity” at which it is spent. If you multiply those two things together, you get the total amount of spending.
The monetary aggregates eg M2 do not make any attempt to measure velocity. They measure the money that is out there for spending. Whether it is spent, and how fast, is another question.
Many things can affect velocity such that, all other things equal, the same amount of money in the economy could lead to different rates of spending, and different rates of inflation. For instance, if people are more cautious and worried about the future, they would tend to increase the amount they wanted to save, which would reduce velocity (that’s happening right now). An example of something that might increase velocity would be concerns about the future purchasing power of the currency, which would encourage people to spend the money faster than they would have otherwise.
Both are important things to consider in your analysis. The reason that I have tended to focus more on money supply is that the various factors that influence velocity tend to be more short-lived, whereas changes to the money supply are more enduring. This is why money supply is a big factor in long-term inflation prospects, even if it is overwhelmed by velocity considerations over shorter timeframes.
Hope that helps.
Rich ToscanoKeymasterOK, I misunderstood you JP.
There are two different things, the amount of money, and the so-called “velocity” at which it is spent. If you multiply those two things together, you get the total amount of spending.
The monetary aggregates eg M2 do not make any attempt to measure velocity. They measure the money that is out there for spending. Whether it is spent, and how fast, is another question.
Many things can affect velocity such that, all other things equal, the same amount of money in the economy could lead to different rates of spending, and different rates of inflation. For instance, if people are more cautious and worried about the future, they would tend to increase the amount they wanted to save, which would reduce velocity (that’s happening right now). An example of something that might increase velocity would be concerns about the future purchasing power of the currency, which would encourage people to spend the money faster than they would have otherwise.
Both are important things to consider in your analysis. The reason that I have tended to focus more on money supply is that the various factors that influence velocity tend to be more short-lived, whereas changes to the money supply are more enduring. This is why money supply is a big factor in long-term inflation prospects, even if it is overwhelmed by velocity considerations over shorter timeframes.
Hope that helps.
Rich ToscanoKeymaster[quote=pencilneck]Doug Noland’s latest puts a good perspective on this inflation/deflation discussion:
“And I find myself increasingly frustrated by the ongoing “inflation vs. deflation debate.” With today’s low level of consumer price inflation, those arguing that deflationary forces are the paramount systemic risk now dominate policy dialogue. Most tend to be inflationists. Most argue for additional stimulus and see little risk in such activist policymaking.
I see risks altogether differently. We are in the late-phase of a multi-decade historic Credit Bubble. The greatest risk at this point is that massive issuance of non-productive governmental debt foments a crisis of confidence at the very heart of our monetary system. The top priority must be to ensure that such a devastating outcome is avoided – and at significant unavoidable cost. It is imperative that we as a nation come to the recognition that real financial and economic pain must be endured to protect the long-term viability of our monetary system. The inflation rate is not the key issue. And efforts to try to inflate our way out of structural debt problems are a lost cause. We must instead move forcefully to rein in our deficits and avoid further debt monetization in order to protect the soundness of our money and Credit – or else risk a financial crash.”
http://www.safehaven.com/article/17675/quantitative-easing-two%5B/quote%5D
Yes, Noland is fantastic imho. Though in this case I think he is more describing the fight between the Krugman types and the austerity types, basically saying that they are arguing over the wrong thing (ie which of their plans will help economic growth better, when in fact the actual topic should be, how do we prevent a crisis in our currency and debt?)
That said, the inflation vs deflation debate is for the most part a waste of time because the participants are usually using a different vocabulary from one another and it’s all cross-talk.
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