Inflation/Deflation Models

David Artig quotes from from an article from Ken Rogoff about the impact of Trade upon Inflation. It is a very worthwhile article to puruse, and I would advise all Interested to read it; Artig provides the link. I must comment, though, that I find the argument to be in error. Market set Prices remain a basic domestic function of the interrelation of Resources, Goods, and the Money Supply. Market Price is a function of Product or Resource availability and the availability of Money in the hands of the Buyers. Do I sound pretentious and boring? It is important, though, to highlight that Markets are geographically positioned, a most element condition of any Market. What’s the big deal? Imports are foreign by nature, and therefore, imitate the behavioral functioning of Resources in the Marketplace, facing a homegrown Product in the Market–the Money Supply. Imports do not affect Inflation, simply alter the distribution of Resources in the Market.

Now the question becomes: Does the concept of Inflation respond directly to an increase or reduction of the supply of Goods and Resources? The Answer is No! Inflation is the response to the increase in Cost of the supply of Goods and Resources. The later does respond to the growth of Money Supply, and creates deflation if the growth of Money Supply is slower than the growth of Supply of Goods and Resources; Inflation if the growth of Money Supply is more rapid than the Supply of Goods and Resources. The truth I am trying to get across states that Inflation, as it is totally dependent upon the local condition of the Market, will always remain the province of the Domestic economy; even when the Currency is multiplex-utilized across national economies.
Inflation finds propulsion in regional maldistribution of Money Supply, but rapidly expands to impact other regional domestic market in the national economy; eventually, it will spread to impact all Users of the Currency worldwide. Deflation is not as easy to create, requiring an acute shortage of Money Supply in regional markets sufficient to draft excess funds from other regional markets in the national economy or world. This draft of funds entails absolute necessity to sustain the regional market or regional economy, but also requires a limitation of Interest payment transfers; the later being a form of Money Supply creation. Inflation/Deflation models are one of those areas of the economy which does not have a natural smoothing process to general balance. lgl