In this post I want to introduce some thoughts on why the actions of the Federal Reserve are distortionary, why the creation of money within the shadow banking system is more organic, and propose a more formal definition of inflation or deflation of the money supply.
Milton Friedman identified that the point of introduction of money into the economy benefited the person who introduced it the most, with its effect lowering as it spread further into the economy. Here the money being introduced isn’t aware of the overall size of the economy. It thinks based off of its one interaction that I am worth such and such and as it interacts more and more with the larger economy it begins to poses more information about the action that it can induce. Continue reading