Gone4Good
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
- Joined
- Sep 9, 2005
- Messages
- 5,381
Another thought expanding on these comments . . .
Inflation is said to be "too many dollars chasing too few goods." "Too many dollars" obviously refers to accommodative monetary policy whereas "too few goods" means an economy's ability to produce products and services . . . it's "supply side". As long as the supply side grows in proportion to the monetary base, there is no inflation.
What has happened over the past few decades is that places like China and India have unshackled the productive capacity of their economies. But instead of turning that capacity inward in an attempt to meet, and stimulate, domestic demand, they've turned it outward to meet world demand. This has had an enormously deflationary effect on global goods and services. And because central banks focus on the price for goods and services, they've been able to keep monetary growth higher than it otherwise would be.
But something happened on the way to Nirvana. While the global supply of goods helped to prevent normal price inflation, the excess liquidity seems to be causing asset price inflation. Central banks never considered asset bubbles to be within their purview, but that thinking is starting to change in the wake of two giant bubbles in the last decade.
So this period may be somewhat different from either the 30's or the 70's. Instead of being faced with a choice between consumer price inflation or consumer price deflation. The choice going forward may be between consumer price deflation and asset price inflation.
Inflation is said to be "too many dollars chasing too few goods." "Too many dollars" obviously refers to accommodative monetary policy whereas "too few goods" means an economy's ability to produce products and services . . . it's "supply side". As long as the supply side grows in proportion to the monetary base, there is no inflation.
What has happened over the past few decades is that places like China and India have unshackled the productive capacity of their economies. But instead of turning that capacity inward in an attempt to meet, and stimulate, domestic demand, they've turned it outward to meet world demand. This has had an enormously deflationary effect on global goods and services. And because central banks focus on the price for goods and services, they've been able to keep monetary growth higher than it otherwise would be.
But something happened on the way to Nirvana. While the global supply of goods helped to prevent normal price inflation, the excess liquidity seems to be causing asset price inflation. Central banks never considered asset bubbles to be within their purview, but that thinking is starting to change in the wake of two giant bubbles in the last decade.
So this period may be somewhat different from either the 30's or the 70's. Instead of being faced with a choice between consumer price inflation or consumer price deflation. The choice going forward may be between consumer price deflation and asset price inflation.