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Tags: gdp | production | reserve

How Physics Can Explain Inflation

How Physics Can Explain Inflation
(Valigursky/Dreamstime.com)

Hans Baumann By Friday, 02 December 2022 02:52 PM EST Current | Bio | Archive

To answer this question, we should consult physics.

Here, the second law teaches that energy can't be destroyed but continuously changes into a less useful version. If we substitute money for energy, we find a similar process, that is the buying power of the dollar constantly diminishes.

This answers a question I'm asked many times: when will inflation appreciably recede?

That really can't be accomplished since, the same as energy, the process is irreversible. Meaning you create fire out of wood, but you can’t produce wood from fire.

The same truth is applicable to inflation.

Since we cannot "reduce" inflation, the only option we have is to slow the rate of future inflationionary types of increases. This is a task our Federal Reserve Bank is working on.

Inflation has been with humankind since money was coined.

A sad fact is inflation was a major contributor to the decline and fall of the Roman Empire.

As I have pointed out in some of my previous blogs, inflation is created when there is an imbalance between consumption and supply of goods.

"Too many dollars chase too few goods," describes it perfectly: the current Fed actions, throttling production by reducing credit to build new houses for example (a GDP enhancement) and, on the other hand, flooding the country with cash in order to pay for the massive spending binges of our government.

One must realize of course, that if there is an excess production of goods, it could create a recession. But we are far from reaching that point.

At this point it might be instructive to review some current numbers:

Between October 2021 and April 2022, the M2 (cash) supply increased from 21.1 trillion dollars to 21.75 trillion dollars, an increase of 650 billion dollars, or 3.1% increase within six months, meaning an annual rate of 6.2%. (Source: U.S. Bureau of Labor Statistics [BLS]).

One could consider US Gross National Product (GDP) as indication of U.S. production.

According to TD Bank, the GDP for 2022 is estimated to be 1.6%.

Here we have, on the yearly basis, 6.2% money coming in and only 1.6% increases production. One will not need a pocket calculator to figure out what he annual inflation increase (over the current legacy inflation of 8.1%) for 2022 will be.

Still such a 4.6 % increase is a sign that inflation rates finally start to slow down.

Dr. Hans Baumann, a former Corporate Vice President and founder of his company, is a well known inventor, economist, and author having published books on scientific, economic, and historical subjects. Read Dr. Hans Baumann's Reports — More Here.

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HansBaumann
Energy can't be destroyed but continuously changes into a less useful version. If we substitute money for energy, we find a similar process, that is the buying power of the dollar constantly diminishes.
gdp, production, reserve
440
2022-52-02
Friday, 02 December 2022 02:52 PM
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