Guidebolt

Banking

Revised 2018.02.23

Money Supply, Purchasing Power, Velocity of Money

It is in the nation's interest to properly control its national money supply using the best of known currency economics. Just as it is clear that a growing economy cannot operate on only a million dollars in circulation, the money supply of a modern nation must be flexible to increase or decrease. It is widely accepted that inflation is better than deflation, to promote consumer spending and business investment while reducing the burden of debt and mitigating the acts of hoarding and scalping currency. Thus the monetary goal of a modern nation has been to err towards inflation but keep it low.

The purchasing power of a national currency starts with its legal enforcement and the priced services of the government. Purchasing power is stabilized by the direct prices that businesses set independently from each other. One of the root factors of inflation is the price escalation of basic materials and fuels such as wood and oil.

Contrary to the sentiment of the average household with a salaried income, money is not a zero sum system. The economy is vitally based on the circulation of money. The velocity of money flow matters, as does the actual individuals and businesses through which the flow occurs. Every purchase has a butterfly effect on the economy because the person who gets your money will then spend it in a certain way. A somewhat predictable chain of money circulation emerges. Decision time and transaction time are significant. To reduce transaction time, modern nations should strive to make money transfer tremendously fast and easy. Decision time is a responsibility better filled by the private sector. Strong circulation of money is fast and flows through many people for full employment.