How can we pinpoint rising inflation caused by excess money in circulation? - Aussie Stock Forums

Thread: How can we pinpoint rising inflation caused by excess money in circulation?

1. How can we pinpoint rising inflation caused by excess money in circulation?

I've heard afew gurus saying that if a government prints too much money, too quickly - expect to see the effects of inflation as there is too much money quickly available and in circulation.... too much money chasing too few goods.

My question is when can the average consumer physically begin to pinpoint the effects ( inflation ) of too much money in circulation ( aside of when prices skyrocket ) ?

Imagine an economy in which there are 1 billion items for sale. If there are
1 billion dollars in circulation in that economy, the average cost of every item will be \$ 1 dollar.

If you suddenly increase the number of dollars in ciculation to 2 billion but the number of items produced and offered for sale remains a billion ( there is no increase in production to match the increase in circulating money ) , the average price of each item will increase to \$ 2 dollars. Therefore, the value, the spending power of your dollar would of halved.

Now let's use the US as an example they have printed billions of dollars to save the economy and bail out businesses, my question is at what point can we start to see the effects of this excess money in circulation ANDDDDDD how does it trickle down to the consumer , where dothese wads of cash/ electronic dollars go before they cause the price of bread for example to go from \$ 4 to \$ 15 ?

I'm soo very new to this so please don't mock me, i'm not at all tertiary qualified, i just want to get my head around this.

Thanks all

2. Re: How can we begin to pinpoint inflation caused by excess money in circulation ?

Originally Posted by archilles
I've heard experts saying that if a government prints too much money too quickly expect to see inflation as there is too much money quickly available and in circulation....

My question is when can the average consumer physically begin to pinpoint the effects ( inflation ) of too much money in circulation ( aside of when prices skyrocket ) ?

Imagine an economy in which there 1 billion items for sale. If there are
1 billion dollars in circulation in that economy, the average cost of every item will be \$ 1 dollar.

If you suddenly increase the number of dollars in ciculation to 2 billion but the number of items produced and offered for sale remains a billion ( there is no increase in production to match the increase in circulating money ) , the average price of each item will increase to \$ 2 dollars. Therefore, the value, the spending power of your dollar would of halved.

Now let's use the US as an example they have printed billions of dollars to save the economy and bail out businesses, my question is at what point can we start to see the effects of this excess money in circulation ANDDDDDD how does it trickle down to the consumer , where dothese wads of cash/ electronic dollars go before they cause the price of bread for example to go from \$ 4 to \$ 15 ?

I'm soo very new to this so please don't mock me, i'm not at all tertiary qualified, i just want to get my head around this.

Thanks all

I've heard inflation is good for the stockmarket as it increases the profit margin on products a company produces hence greater earnings but then again i guess the companys expenses also go up accordingly just repeating what i heard that's all.

What does market history and inflation show?

3. Re: How can we pinpoint rising inflation caused by excess money in circulation?

Archilles, it's not at all an unreasonable question. Inflation isn't uniform in its effects, but has different results in various sectors and on different people.

This is a reasonable, and easy to read summary. Hope it helps.

http://www.count.com.au/investor_edu...ion.htm#causes

4. Re: How can we pinpoint rising inflation caused by excess money in circulation?

Most countries provide data on how much currency is produced each year. Though I don't think America does any more.

To get a clear picture of what excess money can do all we need to do is look at Zimbabwe. At one stage (not sure now) they had a \$100 trillion note.

\$100,000,000,000.

It might buy you an apple.

5. Re: How can we pinpoint rising inflation caused by excess money in circulation?

Thanks for all of your replies, it's really helped keep em coming!

6. Re: How can we pinpoint rising inflation caused by excess money in circulation?

Originally Posted by tommymac
Most countries provide data on how much currency is produced each year. Though I don't think America does any more.

To get a clear picture of what excess money can do all we need to do is look at Zimbabwe. At one stage (not sure now) they had a \$100 trillion note.

\$100,000,000,000.

It might buy you an apple.
When the printing press can't keep up, I'd assume most people start bartering.

I've heard inflation is good for the stockmarket as it increases the profit margin
Yes, more money leads the the illusion of greater wealth and attracts excess speculation and unsustainable expansion. Opportunity for some. The house of cards eventually falls apart. More opportunity. Then the cycle repeats.

7. Re: How can we pinpoint rising inflation caused by excess money in circulation?

Originally Posted by archilles

If you suddenly increase the number of dollars in ciculation to 2 billion but the number of items produced and offered for sale remains a billion ( there is no increase in production to match the increase in circulating money ) , the average price of each item will increase to \$ 2 dollars. Therefore, the value, the spending power of your dollar would of halved.
So therefore when they double the money supply and XYZ company has X amount of shares worth \$1, would they then be worth \$2 after hyper inflation?

8. Re: How can we pinpoint rising inflation caused by excess money in circulation?

Technically that'd seem correct, but in reality I think it's impossible to answer. The money and its effects wouldn't be distributed evenly.

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