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NZD Money Supply Conspiracy Theory 12 replies

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Money Supply

  • #1
  • First Post: Dec 31, 2006 3:41pm Dec 31, 2006 3:41pm
FF definition and analysis: "Measures the annual change in currency outstanding. Higher levels of currency are viewed as deflationary and can have a devaluing effect on the currency . M3 Money Supply is calculated as follows: "

I thought that the more money supply, more fuel for consumer spending, and that is inflationary, which has a positive effect on currency.
  • #2
  • Dec 31, 2006 4:10pm Dec 31, 2006 4:10pm
your absolutely right, the word "deflation" does not belong in the defintion, i will make note of that. thanks for the feedback!

the premise of the definition is correct though, the more money that the government prints, the less each dollar in existence is worth. i havent heard that more printed money creates more consumer spending, as you said. do you remember where you heard that? id be interested to read more on the idea....
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  • #3
  • Dec 31, 2006 4:21pm Dec 31, 2006 4:21pm
the gentleman who wrote that definition explained to me that the word "deflation" was in the there to mean the "deflation of dollar value", meaning each dollar is worth less. not deflation of the economy (where everything would be cheaper and the dollar is worth more). either way, it was confusing how it was written and im glad you caught it. thanks again for the feedback
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  • #4
  • Dec 31, 2006 4:22pm Dec 31, 2006 4:22pm
Rather or not you consider wiki-reality credible or not, this is a very informative article. http://en.wikipedia.org/wiki/Money_supply

After reading it, I am sticking to the idea that an increase in money supply is generally inflationary economically by definition and likely effect.
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  • #5
  • Dec 31, 2006 4:27pm Dec 31, 2006 4:27pm
Quoting merlin
your absolutely right, the word "deflation" does not belong in the defintion, i will make note of that. thanks for the feedback!

the premise of the definition is correct though, the more money that the government prints, the less each dollar in existence is worth. i havent heard that more printed money creates more consumer spending, as you said. do you remember where you heard that? id be interested to read more on the idea....
I just very recently came across an article in bloomberg on Friday (12/29/06). EUR Money supply was recently released and there was an article last week on bloomberg about that. They may have used the term casually. I also remember that Trichet, in one of his latest conferences was attentive to money supply information.

The more money the government prints, the less value it is, I understand the supply and demand in this. If more money gets printed, it's bad for the currency. What does money supply have to do with the economy?

Thanks merlin for your help!
  • #6
  • Dec 31, 2006 4:28pm Dec 31, 2006 4:28pm
Quoting FXopportunist
Rather or not you consider wiki-reality credible or not, this is a very informative article. http://en.wikipedia.org/wiki/Money_supply

After reading it, I am sticking to the idea that an increase in money supply is generally inflationary economically by definition and likely effect.
well, I'd imagine in the long run, it would be good for the economy, and thus inflationary as everyone likes money supply, have more money, spend more money/consumer spending, economy positive, inflationary positive...
  • #7
  • Dec 31, 2006 4:33pm Dec 31, 2006 4:33pm
Quoting Trader1580
I just very recently came across an article in bloomberg on Friday (12/29/06). EUR Money supply was recently released and there was an article last week on bloomberg about that. They may have used the term casually. I also remember that Trichet, in one of his latest conferences was attentive to money supply information.

The more money the government prints, the less value it is, I understand the supply and demand in this. If more money gets printed, it's bad for the currency. What does money supply have to do with the economy?

Thanks merlin for your help!
to answer your question, it doesnt have a whole lot to do with the economy, from an interest rate perspective. you'll notice we dont even report the money supply for the US on the calendar, this is because no one really cares about it.

when the government makes more money, or releases more money, its has neither a deflationary or inflationary effect, in terms of prices. its a wash...there is more money, but the money is worth less. the whole of the money is worth the same though. kind of like when a company splits its stock, yeah there is more stock but the total stock is still worth the same amount.

the other reason it has little importance is because we watch all these indicators so we can eventually predict interest rates. thats the only reason we give a damn about GDP, CPI and all that other stuff. the fact that the central bank controls money supply, and they also control interest rates, tells you that they are not going to "react" to their own doing. money supply is just part of their plan, and they have a host of odd reasons for wanting to adjust the level of money.
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  • #8
  • Dec 31, 2006 4:33pm Dec 31, 2006 4:33pm
Quoting Trader1580
well, I'd imagine in the long run, it would be good for the economy, and thus inflationary as everyone likes money supply, have more money, spend more money/consumer spending, economy positive, inflationary positive...
It is possible it could be stimulative. I guess it just depends on what is done with the money after it is printed. If it is sent to another country as aid or to cover a debt it is not much help, but if it is used to pave roads or other domestic duties it would have some degree of positive effect.
Profit is where readiness meets Opportunity
  • #9
  • Dec 31, 2006 4:38pm Dec 31, 2006 4:38pm
Quoting FXopportunist
After reading it, I am sticking to the idea that an increase in money supply is generally inflationary economically by definition and likely effect.
did i miss where the definition said increase in money supply is inflationary? i did see this...

Quoting wikipedia
In other words, if the money supply grows faster than real GDP growth (described as "unproductive debt expansion"), inflation is likely to follow ("inflation is always and everywhere a monetary phenomenon").
is this what you are referring to?
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  • #10
  • Dec 31, 2006 4:43pm Dec 31, 2006 4:43pm
btw, the best money supply example we have right now is Japan. their money supply has been decreasing bigtime every month. this is the doing of the BOJ of course, and i have heard quite a few discussions that it is odd for the BOJ to be doing something that increases the value of thier currency (because they usually are doing the opposite). this fits with what i have always thought, increased money supply is bad for the currency value. i have never heard money supply being discussed as a cause of either inflation or deflation.
Relax and be happy.
  • #11
  • Dec 31, 2006 4:48pm Dec 31, 2006 4:48pm
Quoting merlin
did i miss where the definition said increase in money supply is inflationary? i did see this...


is this what you are referring to?
My statement is not based on a direct quote but moreso my own conclusion based on that article as a whole and what I believed before reading it. Basically I am saying it was an interesting and seemingly accurate article.

The thing about this discussion for me is the proportions. I would postulate that the variations we see on the short term are miniscule and mostly inconsequential. However, a trend over the long term could be a noteworthy consideration.
Profit is where readiness meets Opportunity
  • #12
  • Dec 31, 2006 4:49pm Dec 31, 2006 4:49pm
Maybe not so much deflation as devaluation? Or am I still confused about this fundie stuff? The increase in supply devalues the money already in circulation.



Quoting merlin
btw, the best money supply example we have right now is Japan. their money supply has been decreasing bigtime every month. this is the doing of the BOJ of course, and i have heard quite a few discussions that it is odd for the BOJ to be doing something that increases the value of thier currency (because they usually are doing the opposite). this fits with what i have always thought, increased money supply is bad for the currency value. i have never heard money supply being discussed as a cause of either inflation or deflation.
  • #13
  • Dec 31, 2006 4:59pm Dec 31, 2006 4:59pm
Quoting smjones
Maybe not so much deflation as devaluation? Or am I still confused about this fundie stuff? The increase in supply devalues the money already in circulation.
That is an excellent way to sort out the confusion between speaking of the currecy itself and the greater economy. Devaluation applies to the currency while deflation appies to the economy. Thanx for that Scott.
Profit is where readiness meets Opportunity
  • #14
  • Dec 31, 2006 5:07pm Dec 31, 2006 5:07pm
Quoting FXopportunist
My statement is not based on a direct quote but moreso my own conclusion based on that article as a whole and what I believed before reading it.
well we must be using different glasses to read that article because i did not get the impression it was conveying this idea. but we agree on one thing, it was a very good article
Relax and be happy.
  • #15
  • Dec 31, 2006 5:08pm Dec 31, 2006 5:08pm
Quoting FXopportunist
Devaluation applies to the currency while deflation appies to the economy.
yeah this is exactly why our definition was defective. we were using "deflation" when we meant "devalue".
Relax and be happy.
  • #16
  • Dec 31, 2006 5:14pm Dec 31, 2006 5:14pm
Quoting FXopportunist
That is an excellent way to sort out the confusion between speaking of the currecy itself and the greater economy. Devaluation applies to the currency while deflation appies to the economy. Thanx for that Scott.

yes but eventually, the currency will affect the economy. I've always thought based on simple supply and demand that more money (more supply) with same demand is bad for the currency. A couple of ways to look at this, foregin investments, foreign demand for U.S. currency are demands.

Now if money is printed and sent off as aid, it is still money in circulation world wide so it would still be bad for the currency.

and low currency prices can be a factor to the economy in many ways.
  • #17
  • Jan 1, 2007 3:27am Jan 1, 2007 3:27am
Aren't interest rates like the carriage carrying the horse? Since interest rates are directly related to the availablility of money, it would seem the money supply (physical) controls the interest rates. But by money supply they aren't talking about the physical quantity of dollars, but how much it costs to borrow one. So dollars are like a commodity, with the worth controlled by supply and demand, with the supply and demand controlled by the interest rates. Interest rates are controlled by people, thus controlling the supply and demand, thus controlling growth. I have always been a simpleton when it comes to economics and this is the way I think of it.
"Its not where your at, but where your coming from"
  • #18
  • Last Post: Jan 1, 2007 12:56pm Jan 1, 2007 12:56pm
Quoting merlin
the gentleman who wrote that definition explained to me that the word "deflation" was in the there to mean the "deflation of dollar value", meaning each dollar is worth less. not deflation of the economy (where everything would be cheaper and the dollar is worth more). either way, it was confusing how it was written and im glad you caught it. thanks again for the feedback

hey no problem, I was reading it and that stopped me to think for a second as if something was odd. Thanks for all your help merlin!
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