Wednesday, March 30, 2016

How do you know money is tight?

Some people say money is tight, and you ask How do you know? and they say Money must be tight because the economy isn't growing.

That's not a theory. That's just the mistaken idea that there is no such thing as an economic crisis.

How do you know if money is tight? You have to compare it to something. To what? I compare money to total accumulated debt. Compare the money we have, the money we use for spending, the money that is the only money we can use to pay down debt -- compare that money to the size of debt. That's how I know if money is tight.

Graph #1
Tight money caused the Great Depression. FDR loosened things up, and then we had a golden age. Tight money caused sluggish growth in the 1970s and '80s. An accident of policy loosened things up a little in the early 1990s, and then we had good years in the latter 1990s. And tight money caused our late crisis, but things have loosened a bit since then.

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