Dollars everywhere – so where’s the inflatio

[fxsusan]

Money supply is rising fast, so where is the inflation? U.S. consumer prices rose 0.4 percent in February, but that was mostly gasoline. Year-on-year, inflation is above the Fed’s 2 percent target but not by much. Yet money supply is going through the roof. Either inflation is on the way, or Milton Friedman should lose his Nobel prize Friedman argued that “inflation is always and everywhere a monetary phenomenon.” He proposed that central banks should increase money supply at a constant annual rate, ignoring economic cycles, so as to minimize self-reinforcing bouts of inflation and deflatio What has happened in recent years is a long way from Friedman’s recommendation. Broad money supply, whether by the so-called M2 measure or the St. Louis Fed’s money of zero maturity – a proxy for the M3 metric – is up almost 10 percent over the past year, while the adjusted monetary base, a narrower measure of money, is up over 18 percent. Friedman’s idea was that the money supply should increase at the same rate as real GDP. Other things being equal, the implication of money supply rising at 10 percent while real GDP has expanded less than 2 percent over the past year is that inflation should be running at more than 8 per The relationship can be delayed. For instance, U.S. monetary policy became unusually expansive around 1965, whereas inflation did not hit 5 percent a year until 1969 and only topped 10 percent in 1974. The so-called velocity of money, essentially the pace at which each dollar is spent and recycled, is also a factor. The 2008 crash and the subsequent deleveraging process may have subdued velocity. Nevertheless, assuming as recent data suggest that the U.S. economy is now recovering from the 2008 shock, velocity should rise to more normal levels. Applying Friedman’s theories, that in turn could bring a rapid acceleration of inflation Meanwhile, Federal Reserve Chairman Ben Bernanke and most of his colleagues believe that inflation will remain muted, justifying near-zero interest rates until late 2014. If Bernanke proves right, he’ll look smarter than the 1976 Nobel Committee

[Paul75]

I don't believe that inflation will remain muted until late 2014. It depends on several factors and due to this, there may be some raise in it.

[Dominator4fx]

Inflation is already starting to rise. We can see the prices of the daily use products going up and then we have to spend more for the same set of requirements.

[UWC-Neeraj]

verbum4it:
inflation is always and everywhere a monetary phenomenon, stated Friedman. I agree. Investment is the way out for overcoming this inflation. The option for intvest your money is through forex trading in a good brokerage with the best service.

We can manage the Inflation with a proper Economic policy which when implemented along with other measures will give a balanced control over it.

[Dominator4fx]

verbum4it:
inflation is always and everywhere a monetary phenomenon, stated Friedman. I agree. Investment is the way out for overcoming this inflation. The option for intvest your money is through forex trading in a good brokerage with the best service.

Investing the money into Forex will give us better returns since we would be able to get the profits and also keep the investments safe when we are doing controlled trading.