Start with my re-creation of Sumner's graph:
|Step #1: Currency Relative to GDP (blue) and the Interest Rate, à la Sumner|
Invert the blue line, as Sumner does:
|Step #2: The Blue Line now shows GDP Relative to Currency|
Show the blue line as percent change from year ago:
|Step #3: The Blue Line expressed as "Percent Change from Year Ago"|
And show the red line as change from year ago, percent:
|Step #4: The Red Line expressed as "Change from Year Ago, Percent"|
Consider that last graph. That scribble in the middle, the up-and-down red lines just after 1980, that's Paul Volcker fighting inflation. After the scribble, the red and blue lines show roughly equal size* changes, and patterns that I think are impressively similar. Before the scribble there is some size discrepancy, but the patterns still match up pretty well.
I notice that both the red and blue lines tend to have low points when there are recessions. That accounts for a lot of what looks like similarity. So maybe the pattern similarity is not as significant as I first thought.
Why does the blue line start out so much higher than the red? (In the 1950s, I mean.) Blue shows GDP relative to the currency component of money. In the early years after World War Two there were some very high peaks in GDP growth, real growth. So that pushes the blue line up at the start.
To the left of the Volcker scribble, there is a lot of size difference between the red and blue lines. I did say that already. But despite the size difference, it appears that every time the blue goes up the red goes up. And every time the blue goes down, the red goes down. I know it is recession-related, but it is still impressive.
To the right of the scribble also. One big difference between the lines is from the 2009 recession to the end of the graph, where the blue line drops way low, and then stays well below zero where the red line sits.
The other big difference in that half of the graph occurs in the early mid-1990s where the red line rises to peak, and the blue lags behind. A pretty good gap opens between them. This difference and this gap occur just as the debt-per-dollar ratio regains upward momentum and we enjoy the good years of the 1990s.
Probably not a coincidence.
The behavior of the blue line is more the result of GDP than currency, as I recently pointed out. And the inverse relation between the red and blue lines on Sumner's graph is due more to GDP than to currency. I'm definitely not saying Sumner is right. But the graph is interesting.
* NOTE: The word "size" needs a footnote. These graphs have two vertical axes, one for the red line and one for the blue. This is done so that the graphing program will re-size and re-position the lines, to make comparison easier. It is still valid to say, for example, that the lines are roughly equal in size, or that there is a size difference. But the word "size" does need a footnote.