Re: the scourge of inflation

On Thu, 17 Jul 2008 07:15:07 -0700 (PDT), orangatang1@xxxxxxxxxxxxxx wrote:

On 17 Jul, 05:32, Mason C <masonc...@xxxxxxxxxxxxxxxxxxxx> wrote:
On Tue, 15 Jul 2008 13:35:13 -0700 (PDT), orangata...@xxxxxxxxxxxxxx wrote:
the cause of inflation is well known. Inflation is created by an
increase in the amount of money or credit in circulation. economists
generally agree that inflation is one of the worst things that can
happen to an economy. For example, keynes describes inflation as a
threat to society itself -

"By a continuing process of inflation, governments can confiscate,
secretly and unobserved, an important part of the wealth of their
citizens. By this method they not only confiscate, but they confiscate
_arbitrarily....There is no subtler, no surer means of overturning the
existing basis of society than to debauch the currency. The process
engages all the hidden forces of economic law on the side of
destruction, and does it in a manner which not one man in a million is
able to diagnose."

- j m keynes (http://www.gutenberg.org/files/15776/15776-h/15776-
h.htm)

Inflation doesn not just devalue savings and make it difficult for
businesses to plan ahead. it also distorts an economy. This is because
when new money or credit is created it must be spent into circulation
and it is spent into a particular area of the economy. The section of
the economy in which the money is first spent experiences inflation
first. we have all witnessed this with the recent house price boom.

rising prices are indicate an increase in demand. entrepreneurs
respond to this apparent increase by investing in that sector of the
economy. this diversts capital from other sectors of the economy. this
is known as mal-investment. (seehttp://www.mises.org/journals/scholar/Sechrest10.pdf)

The only way to prevent inflation is to introduce sound money and full
reserve banking.

All the above is nonsense.  A recital of economic theory, of Milton Friedman's
economic theory in particular.  It does not apply today.

Inflation now is caused by the rapidly rising price of energy: gasoline and
diesel fuel in particular.  The current inflation cannot be stopped by the
conventional method: raising interest rates to quench an over-heated economy.

Wake up and smell the oil.  It stinks.

            Mason


oil prices are now falling. your hypothesis predicts deflation. the
amount of money and credit in circulation is increasing. my hypothesis
predicts inflation.

it will not take long to find out who is correct.

My "hypothesis" is that oil is a finite resource, mostly under the control of
crude governments, and severely depleted in the U.S.A. The current price
may, in part, be a bubble and may drop but not by much nor for long.

I will not *predict* anything. Except that we will never know "who is correct."

Mason C

.

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