Money supply

Economists say that when you increase the money supply you can expect inflation to follow. Since we have increased the money supply by 1.5 trillion over the past three years can we expect inflation in the near future? The answer is yes, but how bad will it be? One way to offset the adverse effects of inflation is to increase productivity but companies over the past few years have increased efficiency and don’t have a lot more room to cut. The government has put money into the system by way of stimulus. It was used to lower taxes, to invest in new green businesses, and to hire more state employees. All three of these put money into the hands of consumers. Suppose all of these consumers decided to use their new found income to buy X boxes. They all head to Walmart. Now Walmart doesn’t have enough to meet the demand so they raise the price on the boxes they have. This is how increasing the money supply causes inflation. This is called demand pull inflation. If everyone got a raise in pay the same thing would happen and this is called wage price inflation. Anyone knows that if we doubled everyone’s salary in a short time prices would double. The next president, whoever it is will have to deal with inflation. Reagan faced that problem and he had Volker cut the money supply and it was very painful. I am not sure that Obama would do that and the problem will drag on and on.