ABSTRACT
Two years later, in December 2006, the dynamics of money supply and prices have evolved in ways that should perhaps have been predictable. The world money supply has grown at an unsustainable pace for much of the last decade. Inflation always gives way to deflation. Inflation is the result of a collective illusion: the collective over-estimation of wealth. It concludes with the recognition of real wealth, and with a trail of disappointments and broken business and financial commitments. The natural reaction of the Fed, seeing the dollar threatened, is to come to its defense; to tighten the money supply and let interest rates rise. Anything that shakes the value of the dollar has implications for stock markets too. Rather than justifying the current structure of currency exchange rates by Fed policy, the high value of the American dollar could in that event be justified by reference to the real assets of the American economy.
