On May 3, 8:17 pm, orangata...@[EMAIL PROTECTED]
wrote:
> On 2 May, 22:02, Ron Peterson <r...@[EMAIL PROTECTED]
> wrote:
>
> > On May 2, 1:12 pm, orangata...@[EMAIL PROTECTED]
wrote:
>
> > > It has long been recognised that deflation is the main cause of
> > > recessions and depressions.
>
> > What causes deflation? And, how do you know that?
>
> > --
> > Ron
>
> Inflation is caused by increasing the amount of money in circulation.
> Roughly speaking, if the amount of money in circulation doubles the
> value of money halfs. So, if the fed creates a lot of new money
> inflation increases.
>
> Deflation is a contraction of the amount of money. If the amount of
> money in circulation decreases the value of each unit of currency
> increases.
>
> Credit created by banks is interchangable with money. When a bank
> gives you a credit card with a 10000 dollar limit it does not need to
> have the 10000 dollars in its vaults. It only needs to have 10% of the
> amount it lends as reserves, as i pointed out earlier. so the bank
> can create 9000 of those dollars out of thin air.
>
> thus a credit card increases the amount of money in circulation,
> causing inflation. If the credit card is taken away the amount of
> money in circulation decreases, causing deflation.
best explained by examples by simplified economic
INFLATION (same thing costs more)
imagine there is a fish market somewhere in Amazon to serve a village
of 500 families, after a while there is a balance of fish (supply) and
demand (money, demand for fishes) that is on an average day, there is
$100 to buy 1000 lbs of fish, it means
100 dollars = 1000 lbs of fish ---> $1.00 = 10 lbs of fish. (supply
= demand)
Suddenly, there is a travel agent who discovers this quaint town and
gringos tourists come. they like fish also and along with locales,
they bring $200 to buy fish, it caught the fishermen by surprise, the
supply is the same: 1000 lbs of fish. while the money in market is
$300 = $200 + $100, it doesn't take long for fishermen to figure out
they make a nice living:
$300 = 1000 lbs of fish ---> $1.00 = 3.3 lbs of fish (supply =
demand)
the fish price raise 3x because there is 3 times the demand (money in
circulation), this can be classified as inflation, same thing that
costs more than it was, or the devalue of the money that has 1/3 of
its former value, the one dollar is the same, but it buys less fish
thus has less value
DEFLATION (good become less expensive)
since gringos don't speak local language, one day they just disappear
back home, so no more $200.00, only $100.00 from locales.
$100 = 1000 lbs of fish ----> $1.00 = 10 lbs (demand = supply)
compared to previous time, the supply looses its value, fish has new
lower price, adjusted for available money in the market.
------------------
this is rudimentary, true for current housing price and Dow Jones at
13000.
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