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He identified the main subsidized sectors. The FED has thrown money at housing and the financial markets. It is now buying longer-term assets, including T-bonds. If we count all of the Federal Reserve Banks' balance sheets, the increase has been from $1 trillion to $3 trillion in less than two years (p. 2).
I am going to write a short explanation of how an increase in the money supply causes an increase in prices. The idea here is to know what is going to happen as that increase in the money supply flows through the social body (the economy).
If everyone woke up and repeated the same routine every day for 10 years, every single person on the planet, every day, the same thing, every day, for ten years, and the supply of money remained the same, every day, for ten years, the rate of inflation would be zero.
The change of prices would not necessarily be zero.
If the amount of money stays the same, inflation stays the same, because “inflation” is (technically) the change of (increase or decrease) the supply of money.
If money is added to the economy (the social body), like a human being on a hospital bed being filled up with more blood through an intravenous plastic tube, the increase in money is “the rate of inflation”; and too much is as bad as not enough.
If too much money is added to the body, and the body does not change in any way, every cell in the body does exactly the same thing it does every other day, and then too much money is added to the social body, like too much blood, which makes the body bloat, swell, blow up, and become “inflated”, what happens to the body, what happens to each cell in the body?
Why would anyone ever desire to “inflate” the social body? Why stick a needle into the social body and begin to pump more and more blood into the social body?
What happens to the body when someone decides to inject more and more blood into the social body?
The answer is easy to see; if the viewer follows the money. Where does the needle stick into the social body? Where does the money go to when the money first enters the social body?
Does anyone involved in that initial invasion of new blood sit around doing the same thing as before? Are any of the people, the cells, inspired to act differently when that new money begins to fill up their areas of influence? Do the cells pass on the new money or do the cells keep the new money in their own inflated bank accounts.
Imagine, please, the patient on the hospital bed, as the patient is being filled up with more and more blood. The doctor comes into the room. The patient is doubling in size, becoming much larger, as the blood begins to fill up the social body. Does the doctor then order a treatment of leaches and ticks, blood suckers, and vampire bats, to attack to the social body so as to drain that excessive blood as the doctor adds even more blood through the tube?
Where does all that money go? What happens if everyone does the same thing every day no matter how much money is ordered and then injected into the supply by the money doctors?
The result, if everyone did the same thing, and no one did anything different, and the only thing that happened when more money pumped into the social body, doubling or tripling the supply of money, is an increase in prices by 2 or 3.
Look at the quote.
Last edited on Wed Jun 10th, 2009 10:40 am by Joe Kelley