Ann: Trading Halt, page-415

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unclescroodge

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22/02/16

23:47

Post #: 17087600
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Originally posted by Windham14 ↑

Eshmun,

Slightly off topic but you mention in the above post that oil prices moving lower are a ''deflationary force'' globally.

It's a Keynesian myth that lower oil prices lead to deflation and higher oil prices lead to inflation. The central assumption here which is incorrect is that higher/lower oil prices cause higher/lower input costs for all products, therefore, if the price of oil goes up, then the price of everything goes up.

This is only partly true in a linear sense, however, in the real world the supply of disposable income is finite, therefore, if higher oil prices lead to higher food prices, people might have to pay more for food but they'll compensate by buying less of something else, which will cause an equal and opposite deflationary effect.

The same logic works for oil prices going lower.

Inflation can only ever be caused by the expansion of the money supply, deflation can only ever be caused by the contraction of the money supply.

Janet Yellen doesn't understand economics, if she did, she'd do us all a massive favour and walk into oncoming traffic.

Oil prices going down is not deflation, it's simply oil prices going down.

Everyone is going to hate me for this post

Cheers
Ivan

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Ivan,

Good post. Can we go one step further?
If you are an exporting oil nation and receive usd for the oil. What does that do to your money supply?

BDR Price at posting: 21.5¢ Sentiment: Buy Disclosure: Held
2 Upvote

0 Great analysis

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Ann: Trading Halt, page-415

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