In an interesting article regarding the level of money and prices from Alasdair Macleod, he describes the Keynesian approach to our monetary madness. Unsound money printed to oblivion never succeeds, just as the central banks’ interpretations of the monetary effects never succeed. In a sound money system, the good money will crowd out the bad money, leaving profitable businesses working efficiently. Sound money will lead to price depreciation and increased power over time, as technologies expedite processes, leading to lower costs. “The defining quality of money is to be widely accepted and stable, so that changes in price are reflected solely in the demand for and supply of individual goods” (Macleod). Not only does this dynamic take place, but the standard of living for individuals will improve.
Unsound money, reflected in the last 45 years of failed state intervention, has led us to the abyss. According to FRED (St. Louis Federal Reserve Bank), the Fiat Money Quantity has gone from $5.5 trillion in 2009 to $15.5 trillion today.“The Fiat Money Quantity measures the total amount of money both in circulation and in the banking system in the form of cash and ready deposits” (Macleod). Even though the quantity of money has increased drastically, price inflation has increased, but not to the levels sought after. Only asset prices have seen significant price appreciation if you look at the official government statistics. We know that price inflation has increased more than reported, but they don’t want you to pay attention to that. They are looking for more price inflation to offset the debt burden and destroy fiat currencies altogether. Undoubtedly, price inflation will occur eventually when the velocity of money increases and consumers reallocate their deposits into their economic needs. Once the wealthy consumers liquidate holdings, the currency units will eventually flow down and increase the overall price level.
Price levels increase eventually due to consumers reducing cash balances, which leads to a mismatch in cash and goods. This mismatch leads to imports, trade deficits, currency weakness, and rising prices. Price adjustments to monetary policy happen via foreign exchange, where trade deficits increase to supply demand that is not satisfied by domestic production. If central banks were to pump up what consumers buy via credit and then reduce the credit rapidly, prices would rise quickly in the return to the mean. The resulting shortage would cause the rising price level as described above. General price levels rise by the rate at which the preference for money deteriorates in favor of the preference for goods. “The result is the total money stock relative to the total value of the goods reverts to where it was before the quantity of money expanded, but each monetary unit buys considerably less” (Macleod). Hyperinflation is the result: $5,000 today would buy the same goods $15,000 would tomorrow. Hyperinflation results in a crack-up boom where consumers rush into tangible goods before their money deteriorates. Does this sound at all like HOUSING OR THE STOCK MARKET? There are too many currency units around the world chasing the same goods. Do you find it interesting that cryptocurrencies are in a “bubble,” according to the mainstream media? I beg to differ, as the world is saturated with dollars and dollar-denominated debt. These dollars are being exchanged for cryptocurrency in a last attempt to avoid the inevitable demise of the dollar.