Monday, November 10, 2014

Money Relative to GDP: Rates of Growth


Graph #1:Percent Change in "Money Relative to GDP" 1916-1970

Graph #2: Percent Change in "Money Relative to GDP" 1970-2014
Click either graph for source page -- Google Sheets for Graph #1, FRED for #2.

On both graphs, base money shown in gold, M2 money in red. Graph #1 shows M1 money (blue) while #2 shows MZM (green).

On both graphs, the different money measures all move together. The money measures all move in the same direction and change at the same time. This generalization appears to be somewhat less true of the second graph than the first. But even on the second graph it is for the most part correct. There are no lags between base money and the other moneys as there are between base money and inflation. Evidently, there are lags between all the moneys, and inflation.

What does this mean?

It means that the metabolism of the economy -- the source of lag -- does not depend on the quantity of money. Or at least, it doesn't always depend on the quantity of money.

This is premature, but I'm tempted to say it depends on the willingness to spend.

4 comments:

jim said...

Art
Perhaps it would improve your analysis if you look at what happened with money not connected to bank deposits and loans.

Read this testimony to Congress from 2003
the conclusion of American Securitization Forum:

"Securitization reflects innovation in the financial markets at its best. Pooling assets and using the cash flows to back securities allows originators to unlock the value of illiquid assets and provide consumers lower borrowing costs at the same time. MBS and ABS securities offer investors with an array of high quality fixed-income products with attractive yields. The popularity of this market among issuers and investors has grown dramatically since its inception 30 years ago to $6.6 trillion in outstanding MBS/ABS today."

That is a a pretty good description of a parallel money making process that grew exponentially from the 1970's to 2008. That 6 trillion dollars in endogenously created money nearly doubled again from 2003 to 2008 and then it all collapsed into a pile of rubble and much of the money disappeared back into the thin air from which it came.

What I'm saying is that if you only look at the process of money creation when banks act as intermediaries between bank depositors and bank borrowers and ignore the exact same process when it occurs outside regulated bank loan/deposit framework, your analysis will be necessarily incomplete.

Oilfield Trash said...

Art

"This is premature, but I'm tempted to say it depends on the willingness to spend."

Yep, P*Q=M*V Heresy I tell you, NUTS!!

Auburn Parks said...

Right on Art-

The 'depends on the willingness to spend' part is the same as MMT's 'savings desires of the Non-Govt'.

If you gave someone a trillion and they never spent any of it on real goods and services so it just stayed as an accounting entry for one person, does it really exist?

Money is only good for what it can do for you. If you never use it, then it only serves as a psychological benefit of the holder. It doesnt actually increase their real wealth or the real wealth of society.

Oilfield Trash said...

Blogger Auburn Parks said...
Right on Art-

The 'depends on the willingness to spend' part is the same as MMT's 'savings desires of the Non-Govt'.

If you gave someone a trillion and they never spent any of it on real goods and services so it just stayed as an accounting entry for one person, does it really exist?

Yes it does exist, the fact you were able to make a transfer of a trillion confirms this.

Transfers require stocks.