{"id":32041,"date":"2018-03-07T09:17:36","date_gmt":"2018-03-07T14:17:36","guid":{"rendered":"http:\/\/olduvai.ca\/?p=32041"},"modified":"2018-03-07T09:17:36","modified_gmt":"2018-03-07T14:17:36","slug":"why-qe-didnt-send-gold-up-to-20000","status":"publish","type":"post","link":"https:\/\/olduvai.ca\/?p=32041","title":{"rendered":"Why QE didn\u2019t send gold up to $20,000"},"content":{"rendered":"<header class=\"entry-header\">\n<h3 class=\"entry-title\"><a href=\"https:\/\/www.bullionstar.com\/blogs\/bullionstar\/why-qe-didnt-send-gold-up-to-20000\/\">Why QE didn\u2019t send gold up to $20,000<\/a><\/h3>\n<\/header>\n<div class=\"content-middle-area-full\">\n<div class=\"entry-content\">\n<p>Why didn&#8217;t quantitative easing, which created trillions of dollars of new money, lead to a massive spike in the gold price?<\/p>\n<p><strong>The Quantity Theory of Money<\/strong><\/p>\n<p>The intuition that an increase in the money supply should lead to a rise in prices, including the price of gold, comes from a very old theory of money\u2014the quantity theory of money\u2014going back to at least the philosopher David Hume. Hume asked his readers to imagine a situation in which everyone in Great Britain suddenly had &#8220;five pounds slipt into his pocket in one night.&#8221; Hume reasoned that this sudden increase in the money supply would &#8220;only serve to increase the prices of every thing, without any farther consequence.&#8221;<\/p>\n<p>Another way to think about the quantity theory is by reference to the famous <em>equation of exchange,<\/em> or<\/p>\n<ul>\n<li>MV = PY<\/li>\n<li><em>money supply<\/em> <strong>x<\/strong> <em>velocity of money over a period of time<\/em> <strong>=<\/strong> <em>price level<\/em> <strong>x<\/strong> <em>goods &amp; services produced over that period<\/em><\/li>\n<\/ul>\n<p>A traditional quantity theorist usually assumes that velocity, the average frequency that a banknote or deposit changes hands, is quite stable. So when M\u2014the money supply\u2014 increases, a <i>hot potato effect<\/i>\u00a0emerges. Anxious to rid themselves of their extra money balances M, people race to the stores to buy Y, goods and services, that they otherwise couldn&#8217;t have afforded, quickly emptying the shelves. Retailers take these hot potatoes and in turn spend them at their wholesalers in order to restock. But as time passes, business people adjust by ratcheting up their prices so that the final outcome is a permanent increase in P.<\/p>\n<p>&#8230;click on the above link to read the rest of the article&#8230;<\/p>\n<\/div>\n<\/div>\n","protected":false},"excerpt":{"rendered":"<p>Why QE didn\u2019t send gold up to $20,000 Why didn&#8217;t quantitative easing, which created trillions of dollars of new money, lead to a massive spike in the gold price? The Quantity Theory of Money The intuition that an increase in the money supply should lead to a rise in prices, including the price of gold, [&hellip;]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_monsterinsights_skip_tracking":false,"_monsterinsights_sitenote_active":false,"_monsterinsights_sitenote_note":"","_monsterinsights_sitenote_category":0,"footnotes":""},"categories":[2],"tags":[17309,124,19140,18405,954,661,662,19139],"class_list":["post-32041","post","type-post","status-publish","format-standard","hentry","category-economics","tag-bullion-star","tag-central-banks","tag-david-hume","tag-jp-koning","tag-money-supply","tag-qe","tag-quantitative-easing","tag-quantity-theory-of-money"],"_links":{"self":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/32041","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=32041"}],"version-history":[{"count":1,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/32041\/revisions"}],"predecessor-version":[{"id":32042,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/32041\/revisions\/32042"}],"wp:attachment":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=32041"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=32041"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=32041"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}