Anyone here know how many transactions have to occur for new money entering the economy to spread out among the whole thing? In other words, how many times does a new dollar have to change hands for monetary inflation to realize itself as price inflation?
The Rev
Lifes a piece of shit, when you look at it
Life's a laugh and death's a joke, it's true
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Interesting question. I read an interview to George Soros warning about a coming period of very high inflation stemming precisely from "cash injections" and "stimulus plans". Reading Rothbard's Mysteries of Banking and What Government did to our Money? can help highlighting most of the processes, though I have come to believe that since those books were written things got much, much worse. Judging by the recent inflationary waves I say that between the official announcement of a bailout/stimulus or other inflationary plan and the time the inflationary effects are felt is about three months. Mind that things will get increasingly quicker as social parts start clamoring for easier access to credit or more bailout money.
Yes, it's time for the Dr Goebbels show!
The Rev: Anyone here know how many transactions have to occur for new money entering the economy to spread out among the whole thing? In other words, how many times does a new dollar have to change hands for monetary inflation to realize itself as price inflation? The Rev
There's no set number; it purely depends on every individual case. This is the same sort of problem that those enamored with sticky prices are really interested in.
So the problem is: for how long does it take an injection of new money, previously non-existent, to exert its will on prices, given that every thing else remains the same (# of goods, how much money people want to hold, etc.--if we didn't hold these things constant it would be practically impossible to answer the question since the quantitative strength of each relevant variable varys with every case).
Anyways, prices would rise as soon as the sellers realized they had less on their shelves, at a given time, than they thought would be capable of satisfying their customer's demands. This would cause them to raise prices. It's probable that the first to receive the new money wll realize this earlier, and the last, later. It's also probable that those who are more attentive and have smaller capacities will also be more likely to raise prices sooner (but this is speculation--and there's a lot more other variables that would enter in).
The time frame for of this is indeterminate. It will change with every example. But given everything else remains constant, prices will rise. If other things change, as they do in reality, what we can say becomes more complicated. We could say, e.g., prices will rise more than they otherwise would of, but then we may need to further qualify it.
Anyways, I've always thought it would be interesting to do something like this with a computer simulation. A lot of complexities would be missed but the obvious relationships that we can theoretically ascertain would still be modeled.
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