4 ms·
Inflation isn't just about money supply (no matter what certain people on the internet tell you), it's about money velocity. If the central bank prints a hundre
by Analemma_ 7y ago
Inflation isn't just about money supply (no matter what certain people on the internet tell you), it's about money velocity. If the central bank prints a hundred billion dollars but it immediately gets stashed in vaults or under people's beds or in international tax havens, it might as well not exist and there's no inflation. The "pushing rope" metaphor for inability to create inflation is a good one.
- AmericanChopper 7y agoI think liquidity might have been the word you were looking for, but your example was not an increase in money supply. Creating money and storing it in a bank account increases supply. Creating money and adding it to a banks reserves increases supply. Withdrawing cash and permanently storing it somewhere decreases supply. Increasing reserve requirements decreases supply. If the amount held in reserve goes up because a bank doesn’t want to loan, or charges too much for it, that decreases supply. Inflation is entirely about the supply and demand for money. You were just calculating it wrong.
- smabie 7y agoMost economists look at the velocity and supply in order to calculate inflation for their models. If you want combine them into supply and demand, fine. But seperating the concepts is valuable. Moreover the velocity and liquidity of money are seperate concepts.