Graph #3 from 9 October (repeated here as Graph #1):
|Graph #1: MULT back to 1959|
Around 1974 there is a sudden drop in the blue line that reminds me of the end of the golden age. Forgive my color confusion, but I am repeating part of that blue line in red on Graph #2, below:
|Graph #2: MULT from 1959 to 1980|
That sudden drop occurs during (and immediately before) the 1974 recession. In red.
The blue line on Graph #2 shows annual rate of change of the red line, and you can see a steep drop in the blue that occurs at the time of the sudden drop under discussion.
On this graph you can also see a short flat spot in the red line at -2 on the left scale (though really, the right scale applies to the red line, and the number is 3.3). This flat spot occurs as the blue line jumps up from negative 3% growth to zero, for two or three years after the near-recession of 1966-67. I point it out because it's the only spot on the graph where the red line isn't trending down. It's the only spot where the blue line isn't averaging somewhere around -1% or less.
So then I got thinking about the bumps of the 1980s and '90s:
|Graph #3: MULT from 1980 to 2000|
They stand out, don't they? The tall blue peaks beginning around 1985 and again around 1992 show the rate-of-change associated with the bumps in the red MULT line.
A different look. The blue line on Graph #4 below is MULT (the M1 multiplier) for 1959-2011, trending down continuously except at those bumps we just looked at.
(The blue line here shows the same info as the blue-and-red line of Graph #1 above. And the same as the red lines shown on Graphs #2 and #3. More color-confusion on my part.)
|Graph #4: MULT for M1 and MZM|
These are log values (as the vertical axis indicates), meaning this graph shows growth or relative growth. So I will say MZM money growth was faster than the rate of M1 money growth for the 1959-2007 period. (I was tempted to say "twice as fast" but that is not correct. MZM growth was about 30% faster than M1 growth during the 1980s, by my calculations.) Also, the MZM growth trend was not declining for the period before the crisis. The M1 growth trend clearly was.
I briefly mentioned the other day, that I think M1 was the "financial innovation" of the years before the Great Depression, and MZM the innovation of the years before the Current Depression. I think this graph supports that view, though I 'm not prepared to explain myself.
Maybe I should say that M1 and MZM are not themselves the innovations, but rather are tools created for the purpose of measuring the results of financial innovation.