Kenneth Gerbino discusses the money supply, and calls Mises’ Theory of Money and Credit “one of the most insightful economic books ever written”.
Russ Winter notes that, while the Fed has recently talked tough about “fighting inflation”, they have stepped up purchases of treasuries (with brand-new fiat dollars). Prior to May 7, the 52-week average was $577 million per week. Since then, it has more than doubled to $1.4 billion per week.
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Hi Kenneth,
I do not agree with you when you say that check writing money market accounts should be considered “real money”. In order for that “money” to be used, the bank needs to sell a security (whatever it is) and get the money from the security’s acquiror. It is different from traditional deposits, which are readily available irrespective of a previous transaction.
Helio Beltrao
Re ‘Myth 2′… massive debt deflation won’t lead to deflation because the Fed will increase money supply to offset it? Maybe but I doubt it. The short term effects, which could last many years (15 in Japan so far and counting) are certainly deflationary, and with interest rates already low and government spending already cranked up, where and how would inflationary policy get traction? At some point, individuals have to make a decision to take the extra debt on. Just because it is offered at zero interest rates does not mean they will take it on. Look at the Japanese example, a whole generation has seen property and equities in decline. Despite near zero interest rates, and long bond yields which until recently were BELOW 1% they don’t borrow. Perversely the inflationary policies have actually benefitted bonds, both Treasuries and JGBs.
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