[nhaehnle]

Yes, though ajross's point was about the causality of things. Printing money by itself does not cause inflation, no matter who does the printing.

Inflation is a matter of supply and demand. As long as there is excess supply, one can buy the supply with newly created money without raising prices. That's supply and demand 101.

The only tricky part is figuring out how much money can be safely printed. Central planning tends to be bad at this (which is why so-called military Keynesianism is a bad idea from an economics point of view, even if you don't care about pacifism).

The trick is to figure out a decentralized and automatic approach. That is, an approach that automatically increases the amount of money creation when there's slack in the economy, and automatically scales back when the economy is operating at full capacity.

[unclebucknasty]

>As long as there is excess supply, one can buy the supply with newly created money without raising prices

I don't understand how this works in the case of, say, quantitative easing, which released tons of new cash into the economy, while nothing else had fundamentally changed with regard to supply in the economy. By your definition, wouldn't that create rampant inflation?

Or, are you saying that much of that money ended up in the equities market vs. "in the economy" as fresh demand, which allowed supply/demand equlibrium to remain virtually unchanged?

[nhaehnle]

Exactly: Quantitative easing did not release new cash into the economy. It only swapped assets that banks held (such as treasuries) for central bank money (aka "reserves"). This is why you saw some asset price increases (which is the stated goal of QE), but almost no effects in the real economy (which is the other stated, but unrealistic, goal of QE).

[dredmorbius]

Printing money by itself does not cause inflation.

You can quibble on what "causing inflation is", but:

- Money is a lien on production of goods and services, e.g., "real wealth" (as opposed to "financial wealth").

- Increasing the amount of money in circulation means that each unit can demand a smaller portion of those goods and services.

- Whether or not inflation is experienced depends on whether or not the money supply, or real wealth, are increasing faster. However we can absolutely say that increasing the money supply will increase inflation over not increasing it.

- Modulo various other factors: is money being destroyed elsewhere in the system (bonfires of Franklins, asset bubble crash, loan defaults, negative real reaturn on business investment)? In that case, net inflation may still be negative, but once again producing more money increases the relative rate of inflation, even if that only means you're deflating more slowly.

- The other principle question is how the new monies are introduced to the economy, which is a matter of some debate, for both economic effectiveness and equity. Many have argued that the TARP bailouts were distortionary in that they provided additional financial wealth to banks and other institutions, many of which were directly implicated in the crisis precipitating the bailouts, creating massive perverse incentives. Alternatives would be allocating the funds evenly throughout the economy -- "throwing money out of helicopters" (where, to avoid the obtuse objection of one thick-headed oaf I was discussing this with recently, we make clear that there are lots of helicopters flying high and the money is distributed evenly through the population), or through a lottery (compulsory, you're entered no matter what) such that the distribution is "clumpy" but random -- present wealth or status plays no role in elevating or decreasing your chance of receipt.

And how the monies are destributed has some role in how pricing signals propogate. But in general: more money == higher inflation. Again, even if that means a lower rate of deflation.

[ha-ha-ha]

Hmmm, there are a lot of opinions and not many hard fact on this topic.

The majority of cultures and religions in human history shared the opinion that in general lending for interest leads to instability.

[ohazi]

The majority of cultures and religions in human history are no longer around.

Joking aside... most of the societies that shared this belief tried to justify interest lending as morally dubious rather than presenting reasoned arguments as to why such a practice was unstable.

And perhaps they had a point. There's a difference between predatory lending to pilgrims at a temple and lending for an interest rate that's close to the expected time value of the money borrowed.

But extraordinary claims require extraordinary evidence. I'm inclined to side with today's economists.