Denmark's 2006 public finances has a surplus of 6% of GDP

[VetLegion]

Velocity doesn't change significantly enough. In order for families to have have both bread and playstations in the given year, velocity would have to certainly increase more than a few percentage points. Present evidence in that regard, please.

[KrazyHorse]

velocity would have to certainly increase more than a few percentage points

Why? The rate of inflation is only a couple of percentage points. The change in money velocity year-on-year exhibits variations of ~5% with ~1% long-term change,

[VetLegion]

Are you suggesting that the Danish economy is overheating due to increased money velocity?

[KrazyHorse]

I'm not suggesting anything. I have 0 idea about the current economic situation in Denmark. What I'm saying is simply that it's possible to imagine a situation where money supply was relatively constant while inflation continued.

[VetLegion]

Originally posted by LordShiva


Decisions about saving definitely do. For me, it changes on a month-to-month basis, depending on what I feel like buying for myself with that month's paycheck.

Well, so do I. But I think that increased demand can't be explained by reduced savings alone.

[VetLegion]

Originally posted by KrazyHorse
I'm not suggesting anything. I have 0 idea about the current economic situation in Denmark. What I'm saying is simply that it's possible to imagine a situation where money supply was relatively constant while inflation continued.

Of course. Here is one: factories reduce production, thus the price of remaining goods goes up.

It's as possible as it is possible for money velocity to be the primary factor in inflation. But neither of those things happen in the real world.

[KrazyHorse]

Never? I find that hard to believe. Just because money supply growth is almst certainly usually the biggest factor in inflation doesn't mean that the other terms never manage to take over, at least for a while.

[VetLegion]

Well, let's try to be constructive here.

The economy can overheat due to demand outstripping supply (=inflation). OK so far.

Now, can demand increase without increase in the money supply? Yes. How?

1. Wages rising at the expense of profits or something else
2. Savings being spent
3. Borrowing
4. Money velocity increasing
5. ...

I can't think of others, but there may be some.

Which is the likeliest source of money for the increased demand behind the overheating phenomenon?

[KrazyHorse]

Money supply increasing. Of course.

Now, do you agree that national banks have only a limited control over the money supply?

[VetLegion]

Yes, limited but decisive in most cases.