A brief follow-up to yesterday's post

Yesterday's post leaves me thinking about the relation between Federal deficits and Base money. That relation is shown in the blue line here:

Before about 1960 I see in the blue line a flat (horizontal) trend at about minus ten dollars of deficit -- ten dollars of surplus, I guess -- for every dollar of base money.

From 1960 to 1982 I see a 45-degree line, a rising trend that brings us to about $100 of deficit per dollar of base money.

After that, a general decline that occurs
1. during the "bumps" in M1 Velocity (the red line), and
2. during the "macroeconomic miracle" and Clinton's balancing of the budget.

After the miracle years, the blue line again increases... until the recent recession.


The red line is M1 Velocity. I added that to the graph after I saw the pattern of the blue line. I think they are mostly similar: Increase until the early 1980s, then a significant change.

The biggest difference between the red and blue lines occurs after 1994 -- again, the miracle years -- when velocity goes *up* while the blue line goes *down*.

I think this is related to my rise and fall discussion, in some way I have not yet figured out.