from Armstrong Economics:
The entire theory of how to manage an economy via the rise and fall of the money supply being the sole cause of inflation or deflation, was really discredited post-1971 with the birth of the Floating Exchange Rate System. Unbeknownst to the vast majority, the entire accounting system of trade had been constructed upon the Bretton Woods system. There was no need to actually count the number of Toyota cars coming in at the dock, for all you had to do was count the dollars in and out and that under a fixed exchange rate mean more or less goods. This short-cut made sense with fixed exchange rates, but not when currency fluctuated.
The 1970s produced rising prices (inflation) but declining economic growth, which became known as STAGFLATION. This was a cost-push type inflation whereas OPEC sent oil prices soaring so the costs rose dramatically forcing prices to rise even in recession. Therefore, it became possible for inflation to now rise without an increase in money supply or even consumer demand. The consumer post-1976 responded by purchasing goods now to save money tomorrow much as the consumer rise in spend in Tokyo ahead of the implementation of taxes. Likewise, real estate sales will typically rise when the consumer begins to see mortgages rates rising, not falling. The consumer responds to the trend in motion.
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