As I imagine most members on these boards know, the US money supply has been growing massively for some time starting, i believe, around the 70s, even before bush and obama.
My main query is why have prices not been increasing in a correlated manner with the money supply in the US? I have heard some various explanations for this. That the productivity of the US economy to some extent covers up the inflation, that we are exporting cheap goods from china in essence "importing wealth", that the provision of government services covers up some of this inflation and that the increase in national debt also keeps prices low.
So, what are in your opinions, the methods and mechanisms by which prices have not sky rocketed in the US for the past few decades? Certainly by looking at the money supply alone this should have happened a long time ago. To some extent I understand someways in which this has not happened but I am myself eager to learn this strictly from an academic point of view. I eagerly await your explanations.
Thank you.
Thank you for your quick and comprehensive explanations. Back in October I was steered towards Mike Shadlock's blog "mish's global economic trend analysis" by a friend who wanted me to see how we are headed for Deflationary credit spiral, and not inflation at all. I have been confusing myself, as Mish is devoutly convinced that we are headed for credit deflation and price deflation, and that foreigners will still choose the dollar and US government bonds because all the alternatives are even worse. I have been disheartened because reading Mish and Gary North (another friend keeps sending me his articles) who both claim strong Austrian credentials, have been preaching non-inflationary credit crunch, without any inflation to follow.
I just can't square this with my gut reaction that the pumping won't result in some inflationary consequences, or there would be no justice in this world. My instinct was that if the government creates more cash or credit and spends more, that we get a destruction of our purchasing power. But I have operated on a hunch mostly. Once again thanks a whole bunch, you have cleared up a lot for me here.