Wednesday, May 11, 2011

60 Times (2) // and Happy Birthday, Aaron!

The "debt per dollar" graph shows monetary imbalance. It shows how much of the money in our economy is debt.

When you add a second DPD, with M1 as the money measure, this is what you get:

The blue line is debt per dollar of base money, same as in my early post yesterday. The red line is debt per dollar of M1 money. The red line peaks lower, because M1 is bigger than base money. Otherwise, the two trend-lines are comparable. Except for one thing: The Bernanke spike.

The Bernanke spike, the massive increase in the quantity of base money, had a very big effect on the blue trend line. It reduced DPD to a value it had back in the early 1970s.

The increase in base money translated into a much smaller increase in M1 money. It reduced this version of DPD to the value it had around 2005, just before our financial troubles started. By this measure, the Bernanke spike has not solved the problem. It has not corrected the monetary imbalance.

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