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Inflation question - Input Junkie
September 20th, 2009
08:12 pm

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Inflation question

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From:mneme
Date:September 21st, 2009 05:25 pm (UTC)
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Probably just stating the obvious (?) but I've generally gotten the impression that the inflation vs boom issue comes down to whether the increased money supply is linked to an increased total wealth.

If the total wealth (e.g., how valuable, say, the US is) increases without proportionate increase in how much effective money there is, there's deflation. If it's matched by an increase in effective money (by printing debt and issuing money; or by making debt more available and therefore allowing institutions to print their own money, etc), there's a boom. If the amount of effective money rises sharply relative to total wealth, there'll be inflation as money drops in value (and the same if the amount of wealth drops sharply, of course). Oh, and if the same event removes both effective money and wealth, there'll be a bust (but not necessarily inflation or deflation, as money may not be changing value relative to wealth)

What makes this really complicated is that wealth (and effective money) can be difficult to calculate accurately, and that either can be created and destroyed by circumstance (or, say, a bubble bursting).
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