Saturday, February 25, 2006

Money Supply Growth

This Author has chosen a Subject today which he knows little about; but that is a fact that hasn't bothered him severely in the Past. Still, the Money Supply calculations are really tricky, basically because no one really has a handle on what are the Generators of the Money Supply. It is an area where you can have your own Pet Theory.

I have always chosen Business Profits as Generator of the Money Supply, thinking where real Business profits increase in Percentage, so does the Money Supply. Many Economists, on the other hand, have differing ideas--citing Wage increases, reduced Interest rates, rise in Trade Sales, and even good old concessions to Labor. There are other exotic theories outstanding, held even by venerated Economists; but I may has exhausted the Majority opinions.

Some things should be known about Money Supply growth. The clear leader is that such growth without a corresponding growth in Investment will develop into Inflation. All funds, however generated, inevitably settle into allocation somewhere: this meaning that if they are not invested, they will eventually descend on Consumer Prices. This is an Event structure which Everyone finds appalling.

The second major element to Money Supply growth or decline stands as Money Supply will not shrink until and unless there are economic losses which decrease the economic profits produced in running the economy. I use the term 'economic' here to denote Business Profits decline is not meant. The survival or failure of individual Enterprise has no meaning here. The salieant point is that the Profit ratio per usage of Production unit remains constant in the seperate economic sectors. The Creative Destructionists have won again.

It is time this Author leaves off talking. lgl

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