Monday, August 30, 2010

Decline of the Dollar

The M1 money multiplier has in general declined since 1960 or before. What is the significance of that decline?

The decline shows that we rely less and less on money. I have already mentioned (elsewhere, repeatedly) our excessive reliance on credit. The two fit together: As our reliance on credit grew, our reliance on M1 money fell.

The accelerating decline in the money multiplier corresponds to the accelerating increase in credit use and the increasing accumulation of debt.

The changes in our economy -- deregulation, financial innovation, increasing reliance on credit, increasing concentration of income, and a reserve requirement of zero for money in savings -- influenced the trend of the money multiplier and the decline of M1 money. Policy caused the decline of the dollar.

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