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Response to HiPointDem (Reply #7)

Wed Oct 3, 2012, 06:06 AM

8. To a point, you are correct...

And this article written last year goes very much into depth about why money growth does not equal inflation...
http://www.forbes.com/sites/johntharvey/2011/05/14/money-growth-does-not-cause-inflation/

Inflation isn't caused by money itself. The actual value of money itself in a fiat system is zero. It's a piece of paper. It's like monopoly money. The value is based on what it can buy. Say the government were to give out a ton of money to people. Just free money. People then go out and start spending this all over the place. Now you have just created demand all over the place. Which means...bingo....prices go up. Inflation. That's a rather simple example, but the point is to show that the inflation is not caused specifically from the growth of money. It's caused by the rate of which it is spent, or in economic terms...it's "velocity."

Now this does not mean you can go and create all the money you want. It doesn't work like that. If we did what the OP suggests, we'd have other problems that could lead to inflation as a result of a devalued currency which would greatly impact our trade deficit and interest rates.

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