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View Full Version : "The money supply is not increasing" ...Am I living in the Twighlight zone?




Matthew Zak
07-24-2011, 12:46 AM
I am just curious... I started arguing with this person and they threw this at me. It's the first time in 4 years I've seen anyone claim that the money supply isn't increasing.

Is it... or not?


Here's the equation for inflation:

M * V = P * Q

M is the total amount of money in society.

V is the velocity of money in society (i.e., how often money changes hands)

P is the price level of society

Q is the real value of goods and services in society (as opposed to the nominal value).

Inflation happens when you raise M, V stays the same, Q stays the same, so P (the price level) goes up.

Right now, we are in a recession, so our V is dropping and our Q is high (we have lots of goods and services nobody wants). Because our V is dropping, our P and M are dropping. Our M is dropping because nobody'ss taking out loans. To get the economy going again, we need to increase M to get the entier equation going again. Of course, if we print too much M, we have inflation, but right now we're just not there.

Now there is such a thing called stagflation, where you are increasing M, but the other things in the equation don't increase, so you have inflation. Economists offer two principal explanations for why stagflation occurs. First, stagflation can result when the productive capacity of an economy is reduced by an unfavorable supply shock, such as an increase in the price of oil for an oil importing country. Such an unfavorable supply shock tends to raise prices at the same time that it slows the economy by making production more costly and less profitable.

Second, both stagnation and inflation can result from inappropriate macroeconomic policies. For example, central banks can cause inflation by permitting excessive growth of the money supply and the government can cause stagnation by excessive regulation of goods markets and labor markets, Either of these factors can cause stagflation.

None of those things are happening, so we have little fear of stagflation.

Danke
07-24-2011, 12:51 AM
"Our M is dropping because nobody's taking out loans." What about the government?

KingRobbStark
07-24-2011, 01:25 AM
Of course we have nothing to fear of stagflation, it's hyperinflation we're worrying about. The equation itself is worthless. How in the world are they able to judge the "true" value of Q? What I consider valuable maybe considered worthless to you. That in itself is enough to shut him up.

Matthew Zak
07-24-2011, 01:34 AM
Of course we have nothing to fear of stagflation, it's hyperinflation we're worrying about. The equation itself is worthless. How in the world are they able to judge the "true" value of Q? What I consider valuable maybe considered worthless to you. That in itself is enough to shut him up.

That argument originated with him saying that we do not have to worry about hyperinflation... that it's not happening.

I simply posted a graph showing how much the money supply has increased since 1919.

Carson
07-24-2011, 03:20 AM
The more they print the more worthless it gets.

http://photos.imageevent.com/stokeybob/followthemoney/RobertSahrcurrencyvalue.jpg

Looks up to me.



P.S. Maybe stagflation is when the globalist have looted, "We the People" dry.

Don't hold your breath waiting for them to spend their own money on the things they want.

Bordillo
07-24-2011, 03:33 AM
m*v= p*q

q is the real value of goods/services which would imply demand related. Decrease in demand of goods= lower relative real price of said goods

or I could be wrong, Im quite tired

Lothario
07-24-2011, 08:09 AM
This is all trash, and he has a poor understanding of it at that. Some of the things he says are illogical, mathematically untenable, or just immature.

Things like: "stagflation, where you are increasing M, but the other things in the equation don't increase," which is mathematically impossible given his equation.

Let's not over-complicate the issue with amateur equations:

in·fla·tion
   [in-fley-shuhn] Show IPA
–noun
1.
Economics . a persistent, substantial rise in the general level of prices related to an increase in the volume of money and resulting in the loss of value of currency ( opposed to deflation).

Inflation isn't a moment in time - it's a process and can only be defined relative to past information. I don't know what this dude's equation is, and I'd be interested to see him work out where the equation comes from, but seeing as how the answer it provides is simply a point as opposed to a process, it cannot by definition be an equation for inflation.

I'm tired, but this just seems beyond silly.

cindy25
07-24-2011, 08:35 AM
one easy to tell is whether the money you receive (paper and coins) are mainly new

Jeremy Tyler
07-24-2011, 08:53 AM
Ok you have reject that equation to a certain extent anyways, it;s purely keynesian and they try to accept that all these are things that are measurable. The idea that we can measure the full money supply, the velocity or Q which is value is silly. Especially the last part about the value of products which they ahve no way of measuring for so many others, only the price system allows that. Now in a recession we are supposed to have deflation. We don't, that means it is inflation. A basic supply and demand chart shows when there is decrease demand prices go down. So when prices don't go down in a recession and actually still go up a little then there a increase in the money supply which is inflation. He is right that velocity is generally not high, and for that reason prices should be dropping..... but they're not.

Nate-ForLiberty
07-24-2011, 08:55 AM
http://forums.watchuseek.com/attachments/f20/412648d1301412890-new-po-prices-$$$$-please-seated-zoolander-mugatu-crazy-pills.jpg

PeacePlan
07-24-2011, 09:11 AM
The quantity of dollars out there mostly is represented as digits in bank computers, it is increasing. There is a lower demand for loans as less mortgage financing has slowed down. Also banks are now requiring you show income proving you can pay back the loan.

What has slowed down is the velocity of money or "the rate at which each dollar is spent and then spent again". Many people are now saving and they no longer can loan and spend using mortgages and refinancing. Velocity has slowed but not the amount of dollars out there. They could create a 100 trillion dollars tomorrow and give it to a bank and if that bank never gave it out there would be no inflation or increased demand on goods. The money has to hit the streets and be spent to cause inflation.

Hope that makes sense - anyway that is what I see?

Xenophage
07-24-2011, 11:12 AM
Your friend is a mathematical nincompoop. A third grader with the most elementary understanding of basic algebra could tell how wrong he is.

The equation M*V = P*Q implies SIMPLY that if you raise either M or V, that the product of P and Q will also raise. Conversely, if you raise either of the values of P or Q, it means that the product of M and V has increased. This seems to me like it is probably a valid equation for determining inflation. You cannot raise any of the values on one side of the equation without also raising the values on the other side of the equation. That's basic algebra, for christ's sake. And your friend is studying economics?

WHAT A FUCKING MORON.

Xenophage
07-24-2011, 11:33 AM
The only logical conclusion that can be made, looking at the data showing that M has increased, and *assuming* that the product of P and Q are not increasing, is that V has decreased. We have not experienced massive price increases across the board, because all the new money is not circulating very rapidly. It's being hoarded by the banks and corporations. Actually, the product of P and Q is increasing, but at a rate much slower than M has increased. V has decreased. It's very simple. When V picks up, we will see prices rise.