Friday, February 25, 2011

It's no secret

From Wikipedia, Money Supply:

The monetary value of assets, goods, and service sold during the year could be grossly estimated using nominal GDP back in the 1960s. This is not the case anymore because of the dramatic rise of the number of financial transactions relative to that of real transactions up until 2008. That is, the total value of transactions (including purchases of paper assets) rose relative to nominal GDP (which excludes those purchases).

So in the 1960s there was not an imbalance between financial transactions and productive transactions. Then (since the 1970s, presumably, or the '80s anyway) there is an imbalance.

I've said this before, but it bears repeating:

When you look for economic data you find it broken down into "financial" and "nonfinancial" categories. "Nonfinancial" is the productive side of the economy.

I think better naming for these categories would be "financial" and "productive."

Or -- better yet -- "productive" and "nonproductive."

Meanwhile, the current naming is indicative of where the emphasis is placed. And that tells you how things got so far out of whack.

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