To recognise that, in the known system, rebalancing the quantitative formula: mv = pq (I’d recommend that those of you who haven’t read this article yet do so first) It can come about in various ways It is a rational and honest approach. So too is accepting that the creation of money in circulation and the increase in M1 may be insufficient to achieve that rebalancing, but it may also be excessive. And the uncertainty is even greater if we recognise that political, financial and monetary measures of an unprecedented nature are being applied to the formula, and therefore with consequences predictably unpredictable. And we should also bear in mind that the systemic changes we have been implementing – most of them out of necessity, or even without a clear understanding of what is happening or of their significance – may mean leaving behind models such as the essential and mathematical ones mv=pq. In favour of what? Only God and/or humanity will say.
The massive bailouts, the absurd and lethal leverage we have been experiencing (and which we are still experiencing and will continue to experience for a long time to come), and the rapidly escalating global crisis mean that the only realistic short-term solution to systemic collapse is an increase in m, whilst keeping our fingers crossed that he makes a full recovery v based on a trust founded on our short-term memory.
Even so, the question that underlies all financial and intellectual discourse and debate today is whether these movements will lead to p whether we will continue to experience deflation or, on the contrary, see almost apocalyptic hyperinflation within a few years. In fact, many are already pricing in this imminent rise in prices and take it for granted that deflation’s days are numbered. Paradoxically, perhaps the q is the variable over which human beings have the least control through their leaders, even though it depends entirely on us as a collective.
If, despite the crisis, the decline in macroeconomic indicators stabilises and, furthermore, the velocity of circulation remains unchanged, an increase in the money supply would obviously lead to inflation. But The same increase in the money supply could persist in a deflationary environment if productivity and the velocity of money remain low.. Why might they remain in a precarious situation? Because of a deepening crisis that is undermining confidence and dampening consumption, whilst at the same time taking a heavy toll on GDP figures. Let us not forget that the lifeline of global economic growth – the emerging economies – is also facing serious problems. For example, China’s growth of 6.1% in the last quarter is inflated by deflation estimated at 2.3%, leaving real growth at a modest 3.8%. Nor should we overlook the obvious fact that the increase in m may occur to a greater or lesser extent, and that There is no benchmark whatsoever for determining the extent to which the supply of money in circulation is abundant or scarce. To claim that hyperinflation is imminent is just as reckless as claiming that, in a forest on fire, the imminent arrival of the fire brigade (an increase in m) will not only put out the fire but will also cause severe flooding in the surrounding area (an increase in p). Without knowing how much water they are going to use, and without taking into account the dryness of the conditions, the wind, any rain that might fall, etc. In other words, neither the other variables in the formula nor the extremely complex global uncertainties that will play a decisive role in the future development of the global economy.
We simply regard this as a possible scenario, but one that is by no means certain. Faced with such an uncertain scenario and in such uncharted territory, as we forge a path towards a new system, we must not assume that hyperinflation is inevitable as a result of the rise in M1, since the variables in decline from mv=pq can perfectly well offset an increase in the money supply which, moreover, no one is in a position to quantify or pinpoint in time.
We cannot even be sure that mv=pq Let this be the equation that governs a new system towards which we are heading without even realising it. And there is no other way forward than to abandon a system that is broken, as we set off towards an unknown destination with our saddlebags full of expansionist economic theories that may not serve us well wherever we are headed. Or perhaps they will, but only after thorough revision.
Our wealth can thrive and grow perfectly well in a deflationary environment, whilst at the same time preparing us for possible short-term hyperinflation that we may never actually see. Deflation, inflation… all I know is that I know nothing.