Quote from: DPoS on April 03, 2014, 10:27:46 PM

Quote from: rocks on April 03, 2014, 07:42:46 PM

That chart is already out of date.

M0 money supply is $3.8T now and rising faster every day. The fact that M0 is doubling every few years inevitably means that BTC will go up in dollar terms. Remember M0 was ~$0.7T in 2008...

I used to think that was a main indicator as well until I learned about stepping back and seeing that the increase in M0 is barely filling in the vacuum of credit destruction.
That is why the fed can print crazy money and we still do not see as much inflation as one might think

velocity is also a main factor for prices but until you see interest rates rise (which is designed to take purchasing activity away from cash holders) the lack of credit is still being infused with printing

Yes, I completely agree with you.

What really matters is M3 supply. It was the rapid M3 growth we had prior to the meltdown that caused price inflation.

What we are seeing today is M0 supply simply "catching up" to prior M3 credit growth. Essentially as everyone leveraged themselves the M3 to M0 ratio was stretched too thin, and there are only two solutions:

1) The market is forced to reduce leverage back normal levels through defaults. This brings prices back down to what they were before the unsustainable credit growth started. This has the effect of punishing those who took bad risks and also rewards those who were prudent and saved.

2) The government reduces leverage back to normal levels by printing M0 to bring it back in line with elevated M3. This causes prices to stay where they are while the real economy reduces. This has the effect of punishing those who were prudent and saved while rewarding those who took bad risks.

This is why printing M0 is bad. It is not that inflation will happen (because it already has). Printing M0 to "fix" things is bad because it rewards the wrong behavior while punishing the right behavior.