BusinessDaily.eu – By Mikkel Roland Egesberg – Welcome to Mikkel Roland Egesbergs “Expanded Quantity theory of Money Theory”…A theory about Money, Trade and Prices: ……(Added I had a spreadsheet showing the calculation, but there is a bug in it right now, so in the mean time this article is a layout for me)
According to “macroeconomics”, 5. edition, ny N. Gregory Mankiw, “The Quantity theory of money M*V=P*Y (Equal to: Money * Velocity = Prices(Inflation) * Output) states that the central bank, which controls the money supply, has ultimate control over the rate of inflation, if one assume that Velocity is fixed, and the economy exhibits the classical dichotomy, meaning money is neutral, affecting only nominal variables in the economy such as prices, wages, and exchange rates, with no effect on real GDP…
Example, the Central banks increase the Money supply with 3%, resulting in more money chase the same amounth of goods, leading to price increases (inflation) by 3% V (velocity) and Y (number of goods/services) are fixed. In short: M (money supply) and P (Prices) increases by 3%, leading to a rise of 3% of both sides of the equation…a number example: (M*V=P*Y): 2*100=1*200 –> 2*103=1*206
“The Quantity theory of money” (M*V=P*Y) says, that if the central bank keeps the money supply stable, the price level will be stable and if the central bank increase the money supply rapidly, the price will rise rapidly”, but the “Quantity theory of money” model forgets Eurodollars. EuroDollars does not have anything to do with Europe as such, EURO-XXX is Currency outside the country where it belongs, so EuroDollars is US dollars not situated in the US, because of transactions such as trade. And “EuroYen” is all Japanese yen-denominated deposits held in banks outside Japan, in short it includes all deposits held external to Japan.
If there is high competion from abroad and iMports (M) increase, money flows out of the economy and ends up as EuroDollars or EuroYen, and therefore the Stock of money in the Domestic Economy decreases, which leads to a decrease in money supply, and thereby a decrease in prices. So basically Mikkel Roland Egesberg use the broadest Money Supply index the “M3″ money supply instead of M0 or “C”.
Right now USA prints $85 billion a month called “QE2”, or “Quantitative Easing”, which is just “Seigniorage”, what feudal lords earned from the difference between the cost to produce money and distribute it and the value of the money. In short, they increase the money supply…
Because of this huge printing of money USA should have higher inflation, ceteris paribus, because more money chase the same amounth of goods, but what happens if we include foreign trade?
Because of a large trade deficit and perhaps buying up assets abroad, USA keeps it’s domestic money supply down, the US just ships the extra dollars abroad, to avoid more money chasing the same amounth of goods.
USA has had a tradeficit in all years since 1975:
How can the US keep printing money, keeping domestic prices down, and getting free stuff from abroad???
The trick for the US, if they want to continue printing money from the thin air, thereby getting free stuff from abroad, is to get other countries to demand the US dollar.
The US can prevent the money it prints from returning home, if it can get other countries to use it’s money, the US Dollar, as their own main currency, which economists call “Dollarization”. Iraq was about to trade Oil in Euros, but “funney enough” the US invasion of Iraq put an end to that, and now Iraq once again trade oil in US dollars.
This can be done if oil and other ressources are traded in US Dollars or the US can simply run with one bigger trade defecit after another, thereby flooding the world with US Dollars. Another way could be for the CIA to cause political instability, causing a run on the local national currency, to the benifit of e.g. the US dollar, which the US will gladly print.
In short, the US keeps printing US Dollars and buys up FREE new stuff from abroad, thereby keeping the domestic money supply low, and it uses its military power and foriegn intelligce agents like CIA to create chaos, and instability, because as economics are told again and again by American Bloomberg and CNCB, political instability leads investors to return to “safe habour”, which they indoctrinate economists is located in the United States of America!
A Mikkel Roland Egesberg article…BusinessDaily.eu – More Facts, Less Talk…