Onion Mom quoted this:
Money supply * Velocity = Price * Quantity of goods and service sold.
In a crude approximation, Let's say P*Q is proportional to GDP (excluding imports/exports). Let's also assume that velocity has slowed down. If Money Supply stays the same, P*Q goes down and we enter into recession.
So does the money supply stays the same? Well, no. Fiscal policy and monetary policy in the US are very different. The FED is in control of the monetary policy and it buys bond to increase money supply. The congress controls the fiscal policy and it issues bond to increase money supply. That is why Hank Pauson's 800Billion rescue plan has to go through the congress. So yes, we just increased our national debt by 800 billion. If Bernanke, China and Japan buy all that debt, the money supply increases by 800 billion.
Anyhow, let's not get fixated on the theory. No one makes a dime from that. Don't we all know the quote from Harry Truman-- give me a one handed economist? Little Stone does not care about the macro stuff. That did not prevent him from becoming wealthy. As long as you focus on the balance sheet and cash flow, the rest is all luck. Stay cool.
Money supply * Velocity = Price * Quantity of goods and service sold.
In a crude approximation, Let's say P*Q is proportional to GDP (excluding imports/exports). Let's also assume that velocity has slowed down. If Money Supply stays the same, P*Q goes down and we enter into recession.
So does the money supply stays the same? Well, no. Fiscal policy and monetary policy in the US are very different. The FED is in control of the monetary policy and it buys bond to increase money supply. The congress controls the fiscal policy and it issues bond to increase money supply. That is why Hank Pauson's 800Billion rescue plan has to go through the congress. So yes, we just increased our national debt by 800 billion. If Bernanke, China and Japan buy all that debt, the money supply increases by 800 billion.
Anyhow, let's not get fixated on the theory. No one makes a dime from that. Don't we all know the quote from Harry Truman-- give me a one handed economist? Little Stone does not care about the macro stuff. That did not prevent him from becoming wealthy. As long as you focus on the balance sheet and cash flow, the rest is all luck. Stay cool.
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