Friday, March 20, 2009

On Inflation

The Feds recent proposal has many people concerned about inflation. While for others it just revives the debate of hyper inflation vs deflation. Minyanville brought about some greater perspective for me however this quote:
Inflation, like other economic entities, is controlled by supply and demand. The velocity of money is one way to represent the demand for “stuff” - when it goes up, prices tend to follow.
From Minyanville
I'm not sure this plays out in the real world but the idea makes sense. We're already maxed out and over leveraged. That's why the global economy is contracting. So it's only producers that can borrow, not spenders, not the banks.