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You're a doctor. I hire you in the public sector for $100 and you save that $100 in a drawer (or a bank account). How does putting money in a drawer cause pric
by neilwilson 5y ago
You're a doctor. I hire you in the public sector for $100 and you save that $100 in a drawer (or a bank account).
How does putting money in a drawer cause prices to go up? How do you have a deficit without somebody somewhere putting money in a drawer?
Money supply is a stock. Spending is a flow. Spending is from income less taxation, which means the next person earning the income gets less than you spend. If the spending continues then all the income disappears in tax. There is a finite transaction sequence and no deficit.
What that tells you is that government spending even if there is a balanced budget can cause inflation - because it depends upon the level of flow, not the stock.
- willcipriano 5y ago> How does putting money in a drawer cause prices to go up If I know lots of drawers stacked with cash exist, I'll value it less. At some point those dollars will chase the goods and buying and render the dollars I'm holding less valuable.
- neilwilson 5y ago"If I know lots of drawers stacked with cash exist, I'll value it less." Pension funds are stuffed full of savings, and they get bigger with every passing year. Do they ever decrease? If not then when is that going to happen? Are you valuing your income less because of the ever increasing level of savings? Because nobody else is.
- willcipriano 5y agoLet's say I have a cryptocurrency and I premine a thousand units and make a hundred available for use. Those 900 could enter the market at any time and drop the value, so for me, I'd price that in. Same thing with cash in a drawer, it may exit the drawer someday.
- neilwilson 5y agoIt may, but it doesn't - because insurance and status. Similarly all the oxygen molecules in the room may spontaneously move to one corner of the room long enough for you to suffocate. But I bet you don't walk around in a diving suit.