Base money, 1918-2016, on a log scale:
|Graph #1: Base Money (AMBSL) on a Log Scale|
|Graph #2: General Trends in Base Money Growth|
When base money runs flat for a while, as it did in the 1920s, conditions arise which require massive increase, as in the 1930s and '40s. After that increase, base money can run flat again for a while, as in the 1950s.
Another example: Money took a turn around 1960 and started to increase. It increased for a good long time. Then around the year 2000 somebody took it into their head to gradually flatten out base money again. They created a nice, gradual curve to achieve the flattening. Then, all of a sudden, conditions arose which required massive increase. Just like in the 1930s.
(For the record: Yes, it was the flattening that created the crisis.)
After you get massive increase, base money can run flat for a while. That's what happened after World War Two. It is happening again now. We know it worked after World War Two. We don't know if it will work now. I think it will work, and predict vigor. Everyone else seems to think otherwise.
That's fine. I don't know what will happen. I'm reading my graphs and saying as loudly as I can what I think the graphs are telling me. But I could be wrong. Maybe the massive increase since 2008 wasn't massive enough. Maybe going flat now is bringing the economy down again. Today's graphs offer no hint. Yesterday's graphs tell me the massive increase was adequate.
After you get an adequate massive increase, base money can run flat for a while. But after a while, the lack of increase in base money seems to create big problems that require another massive increase in the money. This is important. This is something we need to look at.
After you get the massive increase, you don't have "too little" base money any more. You get economic vigor -- that word, again -- and economic growth. And then, after a while if you flatten the money (or just leave it flat) you get the big problems and you need the massive increase again.
What's missing from this picture is private debt. The growth of base money and the growth of private debt must match. If this does not happen, if private debt grows faster than base, eventually times get hard. And after that you have a crisis. The solution, which is massive increase in base money, solves the problem by reducing the private-debt-to-base-money ratio.
The solution appears to work reliably. But some people don't like it. They don't want the quantity of money inflated.
Hey, if you want base to run flat, then you have to make private debt run flat. If you want private debt to increase, you have to make base money increase. The secret is that the two must stay in proportion.
The two must stay in proportion. Knowing this, you would want to seek the debt-to-base ratio that gives the best economic growth. And you would then want to change base and debt together, so they grow at a rate that keeps prices stable. That way, you cover all your bases: growth, and price stability.