Keynes showed in the 30s that it is not always possible to increase the volume of loans merely through decreased interest rates. This is the “liquidity trap” wherein the extra money is not lent out because no one has the confidence to undertake loans.
But almost instantaneously the exchange rates will be impacted by the lowered interest rates. Since we have floating exchange rates now there is no true “devaluation” any more as was the case with fixed exchange rates based on a commodity standard (gold).
Also relevant in examining price changes is the Velocity of Circulation or the number of times a dollar is exchanged during a year. If V is extraordinarily low an increase in the money supply will not be reflected in price increases for a long time. If it is high then even small increases in M will produce a big impact on prices.
Good to know that the buying power of the dollar is the same as it was fifty years ago.
Keynes? Keynes!!!!
That bogus government rent boy is the reason this country is going down the toilet.
Him and his “theory” was the perfect excuse that gave government the green light to START what we are now in the mist of. The US dollar is so abused, is not being accepted outside this country, and is on the way out LIKE ALL FIAT CURRENCIES HISTORICALLY DO.
There is nothing new under the sun, including currency collapse.
“Keynes showed in the 30s that it is not always possible to increase the volume of loans merely through decreased interest rates. This is the ‘liquidity trap’ wherein the extra money is not lent out because no one has the confidence to undertake loans.”
Liquidity traps are indeed real, and one of the few Keynesianisms that aren’t figments of his imagination. But many an economist has sunk on the reef of your line of thinking in this post. We’re bumping up against a fundamental deficiency of empirical disciplines here: the problem of the seen and the unseen. You see credit expansion unable to reinflate the bubble to. What remains unseen is how low prices would be had credit not been expanded to where it is. Just because lower interest rates are not able to stimulate growth does not mean they aren’t causing inflation.
Pre-’08 prices are not the yardstick against which to judge whether there’s been inflation. Current market prices are. Since there is no free housing market, it’s impossible to say what they’d be. But I’m guessing they would be a lot lower
You’re right. an increase in velocity was in part to blame for the inflation around the early ‘80s.