Source of Inflation

Both Mish and Caroline Baum make for an entertaining Read, but they tend to express somewhat of a skewed perception of the orientation of Inflation to the Money Supply. What is the chief element of Inflation? The Answer remains the presence of too many Dollars in pursuit of contested purchase of Goods and Services. This answer may seem somewhat convoluted, but it actually best expresses the Process. How?

Money Supply, in and of itself, is neither Victim or Victimizer in the Inflationary equation. It’s only contact with Inflation relates to placing Dollars on site of the transaction of purchase, which it really does not do. The Money Supply may place Dollars in the hands of qualified Borrowers, but does not allocate those Funds further, or make the Purchase decisions at the point of transaction. There may be some credence to the Suggestion that there may have been some misjudgements in the choice of qualified Borrowers, but when run through a Series of incomprehensible Models, is found to constitute a minor factor in the Inflation rate (explained simply: maybe 15% of the loans should not have been granted, equated in Inflation factorization as less than One-Quarter of Inflation pressure).

What does produce the Inflation then?

I do not qualify the Answer in the slightest: The real Cause of Inflation is Government Deficit Spending. Government Spending does not incite Inflation, simply because Taxes erode the Demand for Goods and Services. Government deficit spending leaves the Resource-Demanding Private Sector Money Supply unaffected, while introducing new Resource Demand, and a special Demand at that: one which always insists on first Priority through the unchecked provision of highest Price. We could here talk about a lot of other Junk, but a basic Statement says that the base equilibrium Resource price will always equal the Overtime Cost of Resource supply, if Government deficit spending consumes more than 8% of the Market share of Product (unlike Cactus, I don’t use spreadsheets and my notes are more in my head than even in minimal order; so you will have to check this information yourself). The issuance of Treasuries is exactly equivalent to printing Money, solely because it funds deficit spending. (By the way, this differs from exorbitant lending practice, as even this must meet basic repayment schedules, which Government deficit spending does not even consider). lgl