Is the latest word on the flood of money the last word?

US inflation, having jumped by 4.2 per cent, is causing some consternation (as well as a pushback understating of it from the Biden apologists).

But those of us raised on the Fisher identity

MV = PT
(where M is the quantity of money, V is the speed money flows round the economy, P is the level of prices and T is the number of transaction)

are hard pressed to explain why inflation remains so low.

The quantity of money (the Fed’s “M2”) has increased by 33% since January 2020.  Milton Friedman’s exposition of monetarist theory would predict a US inflation rate of 30 per cent, given the modest 2 per cent real growth rate

Yes, V and T may not be stable.  But few, twenty years ago, would envisage their unpredictability counteracting the increase in money supply that has occurred even with the banks sitting on the money created by the central bank.

On the US experience, Australia’s money supply growth of 10 per cent should pose no inflationary issues.

But who knows whether the dam will break?

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1 Response to Is the latest word on the flood of money the last word?

  1. Boxcar says:

    Don’t know nuffin about economics, but if I handed a trillion dollars to a few people/ companies to play with in the stock market, surely that will have limited the impact on the real economy. Is Japan’s history evidence of this?
    However if I gave $10,000 to 100,000,000 people, that would, historically, lead to inflation.
    But if the factory (China) is able to meet all or most of that demand, where does inflation occur? Wouldn’t that be China.
    Sea and land shipping have the supply limitations to and in USA, so that’s where the push on price increases is building.

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