Insiderman

Evidence That Big Inflation Is Coming

Monetary stimulus works on the real economy in the short run, but fails in the long run as everyone realizes their earned income purchases less and less.

On Jan 25 07:49 AM [e-mail] wrote:

> Your comment -- "When a central bank doubles the monetary base in
> a matter of months, a lot more money is going to be flooding into
> the real economy. It will compete for finite goods, services, and
> investments, driving up prices" -- doesn't this instance send a message
> to manufacturers and service providers to rehire and crank up production
> to satisfy demand, thereby correcting the problem?? What am I missing?

Additionally, I disagree with the author's contention that the fall in Texas home prices after the oil shock wouldn't qualify as "deflation." Totally false. In the short-term, the initial influx of home buyers must compete only for the 3k homes available (vertical supply curve). An outward shift of the demand curve brought by the influx of oil folks means that prices rise (inflation: too many dollars chasing too few goods). Over time, a new equilibrium short-run supply of homes exists and prices stabilize or perhaps even fall slightly if the area becomes overbuilt. When the oil people move on, the supply of homes remains the same and the demand curve shifts invward. This results in falling prices for the same goods.

Sorry, but those are the very definitions of inflation and deflation.