Saturday, April 14, 2012


From Asymptosis:

There’s about $10 trillion in MZM right now, and GDP (annual spending) is at about $14 trillion.* The money stock turns over about 1.4 times per year.

and this important footnote to the $14 trillion:

* Note that this does not include spending on intermediate goods — those that are turned into final goods within the accounting period — or used stuff. Adding these into total spending when calculating velocity might yield interesting insights. See Nick Rowe, Macroeconomics and the Celestial Emporium of Benevolent Knowledge.

GDP counts only "final" spending. Basing the velocity calculation on GDP is like figuring your average speed during a cross-country trip, based on the time and distance of the last mile of the trip.

If you want a realistic measurement of how often the average dollar is spent, you must consider all the spending that occurs in a given period of time. I have an acronym for that: TEA, or Total Economic Activity. There is no such measurement in the statistics.

Quite frequently in newspaper articles you can find GDP described as "total economic activity." That is an error.

1 comment:

Jazzbumpa said...

You might find something helpful in the flow of funds data.