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Showing posts from January, 2014

What do you know about inflation?

We read about inflation not being a problem in today’s world, meaning that prices are not yet high enough to stir revolt among voters.The word “inflation” is almost always taken to mean price inflation, at least since the end of World War II.According to this view, inflation is well-contained if prices are relatively stable and low. Monetary inflation, or increases in the money supply, is generally ignored unless price inflation becomes an issue.Yet we know that productivity and technological advancements can put downward pressure on prices, thereby masking the effects of money supply increases.We also know that banks can go into protective mode and leave massive amounts of central bank money on their books rather than lending it out under the fractional reserve multiplier.In such cases, low price inflation could mean a ticking time bomb rather than a measure of central bank brilliance.
It wasn’t always easy to jack up the supply of money but the printing press and computers have chan…