As long as the US is still the 500 ton gorilla of the commercial world, which so far it is, the whole world will probably keep on colluding on US fiat money while loudly bitching and moaning. China, to save face, needs to keep on saying it got something for its cheap goods even if it’s a heap of IOUs.
Money is what people believe it to be, ultimately. Yes, supply and demand matter. However most of this QE funny money is not getting out to the street. It’s sitting in funny bank accounts. If not on the street, it can’t inflate street prices.
IMHO of course.
I give thanks every day for people who will take my dollars for their foreign assets. While you think that the US is a 500 ton gorilla, I think the US is a 500 ton house of cards.
And, yes, the velocity of the money supply has collapsed. And Basel III is forcing banks to buy sovereign debt that will ultimately collapse.
But as Milton Friedmen told us, inflation is always and everywhere a monetary phenomenon. It’s just a matter of time.
Probably true for the amounts that Bernanke printed to buy mortgage securities. Mainly that was intended to prop up the big banks by allowing them to churn mortgages based on ever lower rates. Now that rates have bottomed there will be one last refi rush and then no more. At that point Yellow will have to fall back to direct monetary infusions.
A second stream of funny money went to the politicians who printed up treasuries for the money. They spent that money on the street but that street leads mainly to Wall St and China. An obamaphone is a gift to Verizon and to some Chinese corporations.
You raise a good point. Money supply is only one part of inflationary pressures in a currency. If a government triples the money supply but the velocity of money declines by two-thirds, there likely won’t be much inflationary pressure at all.