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| Joined: | Mon Nov 21st, 2005 |
| Location: | California USA |
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Chicago School economists, in their terror of deflation and their pragmatism, remained silent or grudgingly supportive when the Federal Reserve doubled the monetary base in October of 2008. They committed intellectual suicide. They accepted in fact what in theory monetarism denies: Federal Reserve tinkering with the monetary base. This was no 3% to 5% increase per annum.
Listen people to significant things, please. Doubling the money supply is significant. In time that increase in the supply of money is the same thing as doubling the price of everything or more to the point it is the same thing as cutting the value of the dollar unit in half.
That cutting in half of the value of each dollar (by doubling the supply of money) assumes that the new money is not increasing or decreasing the production of new valuable things that people will buy or exchange for that money (the dollar in this case).
Example:
If that money is used to bomb Iran into the stone age (with nuclear weapons on the table) and then all the oil in Iran is stolen and sold to consumers using dollars, then theoretically the value of the dollar would not be cut in half because the supply of barrels of oil would increase. To see that clearly use simple math.
Suppose that Iran has enough oil to equal the amount of dollars (the supply of dollars) before that supply of dollars doubled.
Now the legal criminals double the supply of dollars and with those dollars they buy all that oil (instead of stealing it by torturing and mass murdering Iranians).
Now dollar consumers have twice the amount of dollars but dollar consumers also have twice the amount of oil or at least the dollar consumers have increased the supply of oil in proportion to the increase in the supply of dollars.
If you don't see how the math works then know by experience what happens to the price of gasoline at the pump when there isn't enough oil for the consumers to buy. If you know that the price of oil goes up when oil becomes scarce, then you know, even if you don't think about it, that the price of oil drops when oil is "flowing like water". If someone buys twice the supply of oil that dollar users consume, then oil prices can drop to half the price by that increase in the supply of oil. If at the same time the supply of dollars doubled, then the value of the dollar is cut in half at the same time that the price of oil is cut in half. The net change is zero. Oil prices drop by half at the same time as the value of the dollar goes down by half, the net result is that you have to work just as hard to exchange your work for a gallon of gasoline.
Meanwhile, though, Iranians are tortured and mass murdered, and all the people who have the power to double the number of dollars gain power, because that is why they do that, and all the people who have the power to move armies to Iran (or Iraq or Afghanistan) gain power, if they "win".
If they lose, they still gain power, since they hedge their bets, but that is another story.