Explain it to me like I'm 5, page-9

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MTX2000

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18/07/21

18:52

Post #: 54586608
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Originally posted by Infose: ↑

"With all the money that is being put into circulation at the moment to prop up businesses & individuals what is the likely medium to long term impact on the buying power of a dollar ?"

We don't know, but we know this:

1) that more than 10 years ago the buzz word around here was that hyperinflation was just around the corner. However today,a long period later, there is not evidence of it notwithstanding the fact of Mr. Williams of Shadow Statistics having been saying that the consumer real inflation data has been much higher than the one published by the government.

2) That the IS-LM model ;predicted that inflation would be a non-issue due to the flattening of the LM curve during a severe recession or a long period of subdue growth and stagnant or fallen prices.. The so called liquidity trap problem.

"This concept of monetary policy's potential impotence[3] was first suggested in the works of British economist John Hicks,[4] inventor of IS–LM modeling.[note 1] In fact, Nobel laureate Paul Krugman, in his work on monetary policy, follows the original formulations[note 2] of Hicks:A liquidity trap may be defined as a situation in which conventional monetary policies have become impotent, because nominal interest rates are at or near zero: injecting monetary base into the economy has no effect, because [monetary] base and bonds are viewed by the private sector as perfect substitutes.[2]"

"Japan’s Liquidity Trap Japan has experienced stagnation, deflation, and low interest rates for decades. It is caught in a liquidity trap."

In short, the printing of money does not necessarily lead to inflation as people can use the extra cash being printed to increase their cash balances at the bank or buy financial assets like stocks, or property.

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Is this potentially why we are seeing growth in the stock market?
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