Yeah thats the bit i’m trying to get my ahead around. Specifically:
>> It's arguably both a stock problem and a flow problem
I’m thinking the key variable here is flow
>>> it's a flow problem
You cant have inflation without increased flow, but i’m still wondering about stock because it’s not as simple as just excess money.
Perhaps it is correct enough to just frame it as a flow problem, since that variable is always dominant in every inflation scenario.
> depends on the bank's net lending to you
Yeah that makes sense, so my example should have been a loan from one bank and a savings account at another
We can't define money, we can't define velocity, prices are all relative and what is included as a transaction depends on the definition.
The naive QTM is overly abstract. All we can really do is address the root cause - insufficient supply and competition.
Sounds like a great suggestion.
On the other hand it is also clear that if FED printed out much more money, that would cause prices to go up. BUT that would not really be a bad thing would it, people would have more money.
When you do that, then you can control inflation simply by controlling the supply of paper currency. Like the monetarists suggested.
Why? Because you can discount a CoD into a derivative that also then circulates.
Which is essentially what a bank does - but with a much wider selection of assets.
Eventually you realise that the solution is to embrace Full Liquidity and use a powerful buffer stock offset mechanism to create price stability.
> i take a loan at 2% to save in my bank’s savings offer of 5.25% then flow stays the same (i still spend on the same things each month) but money supply went up
Arguably the quantity of money the bank has created for you depends on the bank's net lending to you, so if you borrow money but hold it at the same institution, you haven't really increased the money supply at all.