Monday, August 4, 2014

As I always say...

From yesterday's post:

I don't say "there is too much debt and too little money" except possibly to emphasize that there is too much debt relative to money. Increasing the quantity of money could help reduce the imbalance, if it was done the right way. Beckworth's "program that gives money directly to households" would be one way to do it.

But if there is too much debt, you don't really need to increase the quantity of money. If there is too much debt, what you really need is to reduce debt.

From mine of 13 July 2012:

The basic problem is the imbalance between money and credit-in-use or between money and debt, as you can see on my Debt-per-Dollar graph. The focus on increasing credit-use rather than on expanding the money supply is exactly the wrong focus.

But the focus on expanding the money supply is also flawed. The problem is not that we have too little money. The problem is that we have too little money relative to accumulated debt. And as you already know, this problem is due more to the growth of private debt than to the suppression of money.

The obvious solution -- the correct solution -- is to reduce private debt.

The Debt-per-Dollar graph:

Graph #1: Dollars of Total (Public and Private) Debt, for Each Dollar of Spending Money We Have

Okay. You know, if the DPD graph really is significant, then the little droopy thing there in the early 1990s must also be significant, don't you think?

I think so. I think you can evaluate the significance of that droop to evaluate the whole concept of debt-per-dollar. Please do.

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