Tuesday, May 10, 2011

60 Times (Afterthought 2)

Secondly, I showed this graph:

Graph #1

And what I said of the graph was this:

The graph begins shortly after 1950 and shows continuous up-trend -- a continuous increase in debt as compared to money -- until 2008 or so, when the Bernanke spike drove DPD down to a level not seen since the 1970s.

Oh yeah, there is one significant drop from 1990 to 1994...

True enough. And what that means is, that debt growth was unfailingly faster than money growth. And that means that the monetary imbalance was growing more severe, without letup, since the early 1950s. Except for that one significant drop, the one that preceded the golden decade of 1995-2004.

Graph #1 above shows a ratio: debt per dollar of money. Graph #2 below separates the two components of the ratio and considers the growth rate of each component.

Graph #2: Debt Increases Faster than the Quantity of Money

The blue line is total debt. The red line is the quantity of money, base money, Fed-issued money, the money they "print".

The blue line is consistently higher than the red line. The growth of debt is consistently higher than the growth of money. Or again, the growth of credit-use is consistently higher than the growth of money. So, when people say "printing money causes inflation" you can tell 'em: Maybe, but the use of credit causes even more inflation.

Tell 'em the use of credit creates debt, too, and leads to debt accumulation and financial crisis.

And tell 'em the economic policy that allows debt to increase faster than money is an unsustainable policy.

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