4 ms·

Can u justify your first scentence? In my head (did not study Econ) x is all the actual economic value in a country and it’s divided by the money supply. You in

Can u justify your first scentence? In my head (did not study Econ) x is all the actual economic value in a country and it’s divided by the money supply. You increase the money supply in a fixed moment (print money) that ratio changes and stuff is worth less or costs more (inflation). So yea please explain how simply printing money doesn’t cause inflation

mikeash 8y ago
Imagine I hijack a treasury printing press and print myself $10 trillion every year, but I just shove it all in a storage unit and never touch it. That won’t affect prices at all.
hyperpape 8y ago
I'm sure there are better sources, but see: https://en.wikipedia.org/wiki/Money_supply#Link_with_inflation https://en.wikipedia.org/wiki/Money_supply#Link_with_inflati... The intuition is that if you hand me a bunch of cash, and I stash it in my mattress, there is no inflation until I begin to spend it.
setr 8y ago
If I understood him correctly: if the money never actually moves, that is, enters the economy properly, then it’d have no effect on it. ie a savings account (to you, personally) is the same as never having received the money in the first place, until the day its spent. If you never spend it, then it may as well not existed. In the same fashion, the printing of money has no effect if no one ever sees it. The more people who deal with it, the larger an effect it will have
- hcknwscommenter 8y ago
  Your statement is headed in the right direction, but misses some important subtleties. Money in the bank, even if you never spend it, can have velocity because the bank can use that deposit money for fractional reserve lending. Also, and very importantly, velocity has a multiplier effect, so small changes can be more important than one might intuitively expect. If you dramatically increase money supply, but velocity dramatically decreases, depending on the relative amounts of both, you may have inflation or deflation. In other words, both aspects supply and velocity are important. This ties into the infamous parable of the Greek hotelier, where you can see that it is the movement of money that has the greatest impact on the economy: It is a slow day in a little Greek village. The rain is beating down and the streets are deserted. Times are tough, everybody is in debt, and everybody lives on credit. On this particular day a rich German tourist is driving through the village, stops at the local hotel and lays a €100 note on the desk, telling the hotel owner he wants to inspect the rooms upstairs in order to pick one to spend the night. The owner gives him some keys and, as soon as the visitor has walked upstairs, the hotelier grabs the €100 note and runs next door to pay his debt to the butcher. The butcher takes the €100 note and runs down the street to repay his debt to the pig farmer. The pig farmer takes the €100 note and heads off to pay his bill at the supplier of feed and fuel. The guy at the Farmers' Co-op takes the €100 note and runs to pay his drinks bill at the taverna. The publican slips the money along to the local prostitute drinking at the bar, who has also been facing hard times and has had to offer him "services" on credit. The hooker then rushes to the hotel and pays off her room bill to the hotel owner with the €100 note. The hotel proprietor then places the €100 note back on the counter so the rich traveler will not suspect anything. At that moment the traveler comes down the stairs, picks up the €100 note, states that the rooms are not satisfactory, pockets the money, and leaves town. No one produced anything. No one earned anything. However, the whole village is now out of debt and looking to the future with a lot more optimism.
raincom 8y ago
Imagine this scenario: if the fed prints $2T, and credits that amount in the accounts of the world wealthiest, it has no impact on inflation, as long as these wealthiest people don't chase assets.

mikeash 8y ago

Imagine I hijack a treasury printing press and print myself $10 trillion every year, but I just shove it all in a storage unit and never touch it. That won’t affect prices at all.

hyperpape 8y ago

I'm sure there are better sources, but see: https://en.wikipedia.org/wiki/Money_supply#Link_with_inflation https://en.wikipedia.org/wiki/Money_supply#Link_with_inflati... The intuition is that if you hand me a bunch of cash, and I stash it in my mattress, there is no inflation until I begin to spend it.

setr 8y ago

If I understood him correctly: if the money never actually moves, that is, enters the economy properly, then it’d have no effect on it. ie a savings account (to you, personally) is the same as never having received the money in the first place, until the day its spent. If you never spend it, then it may as well not existed. In the same fashion, the printing of money has no effect if no one ever sees it. The more people who deal with it, the larger an effect it will have

hcknwscommenter 8y ago
Your statement is headed in the right direction, but misses some important subtleties. Money in the bank, even if you never spend it, can have velocity because the bank can use that deposit money for fractional reserve lending. Also, and very importantly, velocity has a multiplier effect, so small changes can be more important than one might intuitively expect. If you dramatically increase money supply, but velocity dramatically decreases, depending on the relative amounts of both, you may have inflation or deflation. In other words, both aspects supply and velocity are important. This ties into the infamous parable of the Greek hotelier, where you can see that it is the movement of money that has the greatest impact on the economy: It is a slow day in a little Greek village. The rain is beating down and the streets are deserted. Times are tough, everybody is in debt, and everybody lives on credit. On this particular day a rich German tourist is driving through the village, stops at the local hotel and lays a €100 note on the desk, telling the hotel owner he wants to inspect the rooms upstairs in order to pick one to spend the night. The owner gives him some keys and, as soon as the visitor has walked upstairs, the hotelier grabs the €100 note and runs next door to pay his debt to the butcher. The butcher takes the €100 note and runs down the street to repay his debt to the pig farmer. The pig farmer takes the €100 note and heads off to pay his bill at the supplier of feed and fuel. The guy at the Farmers' Co-op takes the €100 note and runs to pay his drinks bill at the taverna. The publican slips the money along to the local prostitute drinking at the bar, who has also been facing hard times and has had to offer him "services" on credit. The hooker then rushes to the hotel and pays off her room bill to the hotel owner with the €100 note. The hotel proprietor then places the €100 note back on the counter so the rich traveler will not suspect anything. At that moment the traveler comes down the stairs, picks up the €100 note, states that the rooms are not satisfactory, pockets the money, and leaves town. No one produced anything. No one earned anything. However, the whole village is now out of debt and looking to the future with a lot more optimism.

raincom 8y ago

Imagine this scenario: if the fed prints $2T, and credits that amount in the accounts of the world wealthiest, it has no impact on inflation, as long as these wealthiest people don't chase assets.