Posted Apr 7, 2013 by Martin Armstrong
Question: If government created even electronic money for its expenses, wouldn’ that be inflationary?
Answer: Not necessarily.
“inflation” is really the depreciation in the purchasing power of the currency. There is a whole other dimension that is overlooked – money supply relative to the population.
DEFLATION will occur if you had a fixed money supply that never increased in proportion to the population growth. If you have $100 and a population of just 10 people, then the per capita money supply is $10. If yoy do not increase the money supply keeping it fixed at $100 by the population is now 20, then deflation emerges (assets decline currency rises) since the per capita money supply is then $5 instead of $10.
INFLATION unfolds if you still have 10 people by the money supply increased to $200 for then you have a per capita money supply of $20.
Population increases and decreases are absent from the normal economic model. This is a huge mistake. The birth rate DECLINES as a society prospers for the people no longer need large families as the safety net for the future. This sets the stage for the economic contraction on a grand scale.
Here is the chart of the population of Rome itself. It peaked with Marcus Aurelius in 180AD. Thereafter, the crises began and the population declined. The debt per capita kept rising and with it taxation. This became a vicious circle chasing more and more people out of Rome.
Therefore, simply increasing the money supply in proportion to the increase in population is not inflationary. However, whenever the money supply growth EXCEEDS population growth, there is an economic contraction. You can then hedge the inflation with assets from gold to stocks. That is called a FREE MARKET and the most important thing is we restore freedom with none of this “papers please” nonsense.