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inflation at 11%

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PaulC
Super Contributor
Inflation here is the key. People define it as a ris ni the general price level. This is incorrect. This is the RESULT of inflation. Inflation is in fact an increase of the level of prices BROUGHT ABOUT BY AN INCREASE IN THE MONEY SUPPLY. Look at the M3 figure from the reserve bank THAT my friends is closer to the real inflation. The total amount of goods an services beng produced is probably increasing but not a lot. The amount of money in the system competing for those goods in increasing MUCH faster. The result is inflation. I think 11% is conservative myself. - P
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Paul, I am not sure if the cause and effect argument you put forward is correct. Money supply is considered a cause, inflation the effect?
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PaulC
Super Contributor
Yes. Its quite simple. The amount of goods and serives in the world is not fixed but grows slowly (as capital investment is required and capital isnt abundant) The number of currency units is increased at a much larger rate. As such prices (prices in currency) rise. Had these new pieces of paper been created the prices would have remained the same (all things being equal). James dines explains it quite well and often says things like "there are more and more dollars chasing the same goods and services" http://www.kingworldnews.com/kingworldnews/Broadcast/Entries/2011/7/12_James_Dines.html is an interesting listen. But think about this. above ground gold supply increases at +- 1.2-1.5% a year. Its not perfect but its a lot less than M1, M2 and M3 increases. When we were on a classic gold standard (when you could redeem paper for gold IE pre bretton woods) When the world had inflations it was because the metal backing had been removed (think the US continental wars, Wiemar Germany, Zimbabwe as a more recent example) More currency competeing for same goods == higher prices. Hope that helps clarify my stance. I know a lot of people disagree but history is on my side here. As an aside (I cant remember when exactly) but the oxford definition of inflation was an increase in the general price level brought on by an increase in the money supply. IN the past couple decades (again I cant remember when) they dropped the latter part and left it as An increase in the general price level. Ill stop putting people to sleep now ;) - P
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I am not disputing money supply as the cause - I am simply stating that this is what it is - the cause. Inflation, on the other hand, is the effect. So to use a money supply measure like M1, etc as a measure of inflation is incorrect - CPI measures the effect of money supply.
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striker
Super Contributor
- Skaap - You are quite right, but therein lies the abnormality with the country's economic dynamics. It's a two tier economy with extreme divergences, and worse the chasm between the haves and have nots is growing apace.
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striker
Super Contributor
- Skaap - You are quite right, but therein lies the abnormality with the country's economic dynamics. It's a two tier economy with extreme divergences, and worse the chasm between the haves and have nots is growing apace.
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striker
Super Contributor
Gremlins - Cont All our fundamentals are skewed in favour of the poorest in the population. One has to say it's an artificial scenario and something must give. A big concern is that our fiscus is not sustainable, in it's present form. The govt's efforts at uplifting the poor and growing the middle class base, has been superficial at best. In truth it has probably shrunk. With a population of 50 m plus and a registered income tax base of some 5.8m govt. has a problem. with a growing budget deficit the only likely outcome.The casualties can only be interest rates, inflation and a falling Rand. What are your thoughts ?
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PaulC
Super Contributor
Striker I agree with you. The only solution I see is for gov to get out the way and stop legislating barriers to business. The prob is some poeple are going to get very very wealthy in opening businesses. Personally I have no problem with them. They are taking the risk and using their initiative. Driven by greed they will end up providing jobs and uplift people along the way to their goals. However they they become a target as "greedy capitalists" Dunno about them but I never got a job from a poor person. -P
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