> Consumer price inflation is mostly a monetary phenomenon. The increased money supply is only one side of the equation. We must also subtract the deflationary effects of debt defaults. Banks create new money by issuing loans, and when debtors default the banks are forced to write down the value of those loans. Thus money which formerly existed in the financial system vanishes.
> So for the next year or so as defaults accelerate I expect that deflation will be a larger concern than inflation, and central banks will try to counter that by large, frequent injections of new money.
The flow of new money creation is not evenly distributed throughout an economy, and this is called the Cantillon Effect (which can also be applied to deflation).
The new money creation has been going strong for some time now, but hasn't been flowing into sectors measured by the CPI. This has kept CPI increases relatively low in comparison to the increases.
However, send $1000 per month to every American and nearly all of that will go into sectors measured by the CPI, which will then go up.
> So for the next year or so as defaults accelerate I expect that deflation will be a larger concern than inflation, and central banks will try to counter that by large, frequent injections of new money.
The flow of new money creation is not evenly distributed throughout an economy, and this is called the Cantillon Effect (which can also be applied to deflation).
The new money creation has been going strong for some time now, but hasn't been flowing into sectors measured by the CPI. This has kept CPI increases relatively low in comparison to the increases.
However, send $1000 per month to every American and nearly all of that will go into sectors measured by the CPI, which will then go up.