The Inflation Game

Published on July 21, 2006 in the Business Line

Inflation is one of the most misunderstood topics today. Most people, incluiding Economists and Central Bankers tend to define it in terms of the Effects rather than the Causes. This often leads to rather meaningless debates between "Inflation Vs Deflation". This article shows that as soon as we acknowldege the underlying causative factors -- which is excess Money Supply -- then the outcomes are easy to predict.

BL did not publish some of the associated graphs and so am attaching the same here. Also, the BL introduction states that US has been running a tight-money policy under Greenspan -- that is also not correct. US has had a ultra-loose monetary policy for the last 20 years -- a casual look at the graph of M3 will confirm what I am saying. Additionally, the title "Maestro" used for Greenspan was a pun - the only thing he was a Master of was printing money.

It would be safe to state that when the obituary of Capitalism in the US is written 5-10 years down the line, it would be stated that Greenspan & Bernanke did more harm to the capitalist system than all others combined.