Will Fed Chairman Powell's soft landing succeed????? The mechanism of monetary volume control
It's not like you're controlling your body temperature with a fever reducer
It's similar to controlling the amount of food you eat
The Fed is responding with high interest rates to lower inflation
There are usually three types of markets where money is circulated
First, the real market where money is exchanged for real goods
Second, the financial market where money is delivered through bonds without real exchange
Third, no matter what the price, just the transfer income that money is transferred to
Often the money economy we dream of is mainly a movement in the real market
Money was introduced to help exchange between merchant A who brought mackerel and merchant B who brought rice...
This concept fits well with commodity currencies such as gold coins
In other words, the currency was introduced because it became much easier to exchange through gold coins
So, when it comes to money supply, it's only about the amount of money circulating in the real economy
But
In the modern economy, much more money is circulated in the financial market than in the real economy
It will be at least 50 times more
And money comes from the financial market
Money is the debt that arises from the financial market
Inflation is about the exchange rate of money and goods in the real market
Inflation is controlled by the interest rate on debt in the financial market
It's not controlled by the amount of debt, it's controlled by the interest rate of debt
Of course, the relationship between the interest rate of debt and the amount of debt is straight forward
But how much higher interest rates reduce debt is then different
Also, I don't know how much debt should be reduced to reduce inflation as much as I want
It's like the question of how much food you need to eat to a patient with a high body temperature to decrease his body temperature
I don't know how much I have to feed to lose my body temperature
My body temperature doesn't drop because I eat a lot right now
It takes time for the effect to come into play
If the main reason for the increase in body temperature was lack of nutrition, the body temperature would drop if the energy was sufficiently restored in about a month after feeding it
But if the cause of high fever is enteritis, not malnutrition, your body temperature will not drop just by eating a lot of rice
Inflation is a measure of the real market
I'm trying to solve this by adjusting the scale of the financial market
The relationship between the two is correlated, but it is not a finely woven one
We can't just hit inflation accurately with interest rates
Interest rates will directly affect the financial markets as a whole, and this will only indirectly communicate to the real market to have an effect
Also, the cause of inflation is not just the increase in money supply
The supply is low, which could lead to an excess of money
In any case, in order to be effective with these blunt correlations, the intermediary financial markets must hold up well
If you don't overdoze, you might not get the price level you want
It could take a lot more time
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