2 ms·
It’s not quite that simple. If I give you a new £20 note and you put it in a drawer then that won’t cause prices to go up. It’s not money supply that’s the is
by neilwilson 2y ago
It’s not quite that simple.
If I give you a new £20 note and you put it in a drawer then that won’t cause prices to go up.
It’s not money supply that’s the issue, it’s money flow vs capacity to produce.
There isn’t a fixed amount of stuff and there certainly isn’t a fixed speed at which money can change hands.
- WalterBright 2y ago> If I give you a new £20 note and you put it in a drawer then that won’t cause prices to go up. Withdrawing money from circulation (or lighting your cigars with it) cause a reduction in the money supply, meaning each remaining dollar is worth more, which is deflation.
- neilwilson 2y agoPeople withdraw money from circulation all the time. It's called 'saving'. That's what a 'deficit' is - people saving rather than spending. That's what money in a bank account is. It's what a government bond holding is. That isn't reducing the money supply - burnt notes remain on the books of the note issuer and are included in the calculation. It reduces the overall velocity of money, not the amount of money. That's because the velocity is variable. Not just in aggregate but in individual areas. Dollars change hands at variable speed. That's why turnover is measured in dollars per month, not dollars. Mixing up dollars per month and dollars is like mixing up miles per hour and miles.