[Copernicus]

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Sorry I haven't gotten back to you Cracka. I haven't been paying attention [img]/images/graemlins/smile.gif[/img].

It has to do with the quantity equation of money:

MV=Py

Where:
the quantity of money (M) times the velocity of circulation (V) equals the price level (P) times output (y).

I'm probably inviting a jihad from the ACers btw.

If M an y remain in balance and V holds relatively constant then P (inflation more or less) stays relatively low. If y (Chineese GDP) is increasing at a fast enough rate increases in M (the money supply more or less) can be accomodated.

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And just to finish the thought for Howard, if y nosedives, the Money supply cant shrink, and the Velocity remains drops (it doesnt need to move as fast with business contracting and banks not lending), the balance has to be found in P.... ie inflation.