Money by itself doesn’t mean anything unless it reflects the value of something else… This value means the purchasing power… No matter the function of the money (transaction intermediary, accounting unit or asset); it is worth of nothing if its purchasing power is dramatically affected… Here is the fundamental meaning of the inflation… In other words, when the supply of the money doesn’t reflects the real quantity of wealth that is produced within the economy, then you have more pieces of paper and/or metal that are worth of nothing… The American inflation of the 1970s has been analysed without taking in account the fact that dollar is not only a domestic currency used exclusively within the American economy… The demand of dollar is global… What was the context not only of the American Economy but also of the global economy in the 1970s? If one understands it, it is easier to explain the American inflation of the 1970s… By the way, while Volker’s remarkable policies in 1980s helped to deal with inflation in America, there is no doubt that the transformation of the global economy since then has significantly impacted the health of dollar… To make it simple, if we agree with the Milton Friedman monetary premise that sets that inflation is a purely monetary phenomenon, then when can assume that the inflation of prices in dollar depends not only on the American domestic demand and the supply of the dollar but also of the global needs and supply of the dollar as an international reference currency… From oil to other many commodities, assets, good and services within the global economy, their prices are in dollar… So the inflation defined as the variation of prices in dollars comes not only from the American domestic prices but also from the global prices of assets, goods and services whose transactions, accounting and value are made in dollar… Now the question: Are the global supply and demand of dollar as the global currency reflect the real quantity of the portion of the global wealth for which dollar is used as currency (no matter the function it supports)? The response to this question is the key to understand the consequences of Quantitative Easing tools in the middle and long run… INJECTING MORE MONEY WHEN AND WHERE THERE IS NO REAL INCREASE OF PRODUCTION OF WEALTH (GROWTH) CANNOT LEAD TO THE RESULT OF THE ALCHEMY THAT MAKES PEOPLE BELIEVE THAT GOLD CAN BE PRODUCED BY MAGIC EFFECT… If any central bank were able to produce wealth (growth) simply by keeping the economy under permanent perfusions of money injection, every nation would have been very rich… Unfortunately being rich is more than printing pieces of paper and metal and making believing people that they are making money with them… This is a dangerous illusion that has ruined nations in… (HYPER)INFLATION…
Posted on: Fri, 13 Sep 2013 03:35:30 +0000
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