On Mon, 05 May 2008 10:36:55 -0700, Su**** Fish wrote:
> 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.
No. "flation" is anywhere and everywhere a monetary phenomenon. You are
showing examples of supply and demand in a real market for goods and
services. That is absolutely _NOT_ in/de flation. True inflation is
caused by declining value of the currency itself.
--
"I know no safe depository of the ultimate powers
of society but the people themselves; and
if we think them not enlightened enough to
exercise their control with a wholesome
discretion, the remedy is not to take it from
them, but to inform their discretion by
education." - Thomas Jefferson
http://GreaterVoice.org/extend
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