tag:blogger.com,1999:blog-2098432983500045934.post7844336011043004539..comments2024-03-12T22:19:32.339-04:00Comments on The New Arthurian Economics: Looking for significanceThe Arthurianhttp://www.blogger.com/profile/16501331051089400601noreply@blogger.comBlogger2125tag:blogger.com,1999:blog-2098432983500045934.post-75830658067120272852016-01-12T05:32:29.220-05:002016-01-12T05:32:29.220-05:00Thanks Trash.
Hey I found an old graph of MZM ve...Thanks Trash. <br /><br />Hey I found an old graph of MZM velocity and the interest rate --<br /><br />http://1.bp.blogspot.com/-CeLh26yO3n8/ULf51lkp2zI/AAAAAAAAFqs/emxQqCkxcMc/s1600/FRED%2BMZMV%2Band%2BFEDFUNDS.png<br /><br />There is definitely some relation between velocity and interest rates.<br /><br />My Step 2 graph above shows GDP relative to currency. Sumner shows this and calls it "cash velocity". That is absurd. "Velocity" (or "income velocity") is the average number of times a dollar is spent. Sumner is looking at only part of the money that is spent.<br /><br />For spending, they only count GDP. That's ridiculous too, but that's another story. Pretend GDP = total spending.<br /><br />No matter what velocity you are looking at, the spending number doesn't change. It is always GDP. Only the "money" number changes. The graph I linked in this comment uses MZM money. I don't think MZM is a measure of spending-money. M1 is a measure of spending-money. I think if you want to measure velocity you should look at the spending we do, divided by the money we spend. So: GDP/M1. And then there is a lot of money, other than M1, that is *not* in the spending stream and doesn't get spent. That money is very important. But it doesn't get spent, so the velocity of that money is <b>zero</b>. It is incorrect to use MZM or M2 in a velocity calculation -- incorrect and meaningless.<br /><br />By the way, if somebody takes money out of savings and spends it, that money becomes part of M1. So it remains true that we should use M1 for velocity calculations.<br /><br />We should definitely look at the quantity of money that doesn't get spent, but we should look at it in a way that economists fail to: We should look at the money that doesn't get spent, relative to the money that does get spent. Beside the point here.<br /><br />Sumner takes only part of spending-money, just the part of it that is currency. He looks at GDP relative to currency and calls it "cash velocity". This is absurd. The money seems to move much faster when you only consider part of it (because the <i>spending</i> is still the same).<br /><br />Economists often look at M2 velocity. The quantity of M2 is bigger than M1. (M1 is the quantity of spending-money.) So M2 velocity is less than M1 velocity. Sumner is doing the opposite, looking at currency velocity. The quantity of currency is smaller than the quantity of spending-money. So currency velocity is greater than M1 velocity. It's all meaningless bullshit.<br /><br />// sorry about the rant!<br /><br />Velocity is irrelevant to Sumner's post and irrelevant to my complaint about the graph in his post. I want Sumner to use a currency ratio that suits his purpose. Sumner's choice (currency relative to GDP) does not suit his purpose. In his post he says<br /><br /><a href="http://www.themoneyillusion.com/?p=31387" rel="nofollow">Interest rates are the opportunity cost of holding cash.</a><br /><br />But say that more clearly, and it comes out like this:<br /><br /><i>Interest rates are the opportunity cost of <b>holding money as cash</b>.</i><br /><br />Therefore, when he shows it on a graph, he should show cash or currency <b>relative to all the money we hold</b> -- probably M2 or MZM. This would show our preference for holding money as cash.<br /><br />https://research.stlouisfed.org/fred2/graph/?g=37kk<br /><br />Our preference for holding money as cash appears to have no consistent relation to the interest rate.<br /><br />Sumner shows currency relative to NGDP. Immediately, inflation has an impact on his results. Inflation, and god knows what else. His graph his garbage.<br /><br />But his graph gives him a result he can use to support his argument.<br />The Arthurianhttps://www.blogger.com/profile/16501331051089400601noreply@blogger.comtag:blogger.com,1999:blog-2098432983500045934.post-62180070891641822802016-01-11T15:55:58.276-05:002016-01-11T15:55:58.276-05:00Art
Like the graphs to me they show that Macro re...Art<br /><br />Like the graphs to me they show that Macro recession pressures causes short term interest rates to go down, and or increases the demand for currency. <br /><br />Nothing special about that.<br /><br />As you say it is all about GDP, all the ink spilled by Sumner for much to do about nothing. <br /><br />Oilfield Trashhttps://www.blogger.com/profile/16151172995826850192noreply@blogger.com