Originally Posted by NoDrama

Increased money supply IS the definition of Inflation. The first thing that happens is unjustified exuberance as people put their money into another bubble, it happens every time. As long as we have Fiat currency it will never change. The money in the market is first used by the banks as they issue the loans and create even more money in the process. Because they are the first to use it, there isn't much inflation adjustment of prices, not until it gets circulating do prices go up. You can stave off inflation the way the US does, by exporting Dollars in the form of T-Bills to foreign nations and also the currency itself so that other nations can purchase oil. You can only buy oil with US Dollars, its the product of being the worlds reserve currency. China, Russia, Brazil have already began trading for oil not using Dollars. As the rest of the world realizes that the Dollar is going to be worth nothing they will cash in their T-Bills and then the inflation will REALLY get going. Thats called "When the chickens come home to roost".


We normally run a 4-7% inflation, so prices double every 7-10 years. But one shouldn't really look at it as increase in prices, but devaluation of the dollar, because thats what it REALLY is. The dollar is worth less, which is why prices go up. From 1776 to 1913 the dollar held its value and only wavered by a grand total of 16 cents from high to low over that period, since 1913 and the Inception of the Federal Reserve the dollar has lost 95% of its value, with the single greatest period of devaluation begining in 1971 after Nixon closed the Gold Window and the Dollar was thrust upon the world with no backing other than a promise.