Mr. Bernanke, Chairman of the Federal Reserve, has told us many times that inflation is under control. Yet, we on Main Street don't see it that way, do we? The Fed's target for inflation is 2% and even their manipulated calculations put inflation at 3%. I guess missing their target by 50% is Fed speak for under control.
Paul Krugman, the Nobel Laureate Keynesian economist and columnist for the New York Times likes to make fun of Austrian economist.
- If the amount of money in circulation decreases relative to the amount of goods and services, prices go down. When money becomes scarce relative to the things we can buy with it, we get more for our dollars.
- If the amount of money in circulation increases relative to the amount of goods and services, prices go up. When money becomes more plentiful relative to the things we can buy with it, we get less for our dollars.
- The total quantity of goods and services is not static. For example, increases in productivity or relaxed government regulations can quickly alter the supply of various goods and services.
- Just because the government runs a deficit or the Fed prints more money does not mean the amount of money in circulation will increase instantly. For various reasons we sometimes choose to sit on our money. Then that money is not circulating.