tag:blogger.com,1999:blog-6616959642391988608.post2764617003214521202..comments2024-03-18T13:22:06.536-07:00Comments on Calafia Beach Pundit: Money velocity is likely stabilizingScott Grannishttp://www.blogger.com/profile/14028519647946868684noreply@blogger.comBlogger15125tag:blogger.com,1999:blog-6616959642391988608.post-29517026592809110232009-06-18T17:36:09.325-07:002009-06-18T17:36:09.325-07:00I think M2 is the best of the money supply measure...I think M2 is the best of the money supply measures to watch, but no measure is perfect. I've been reading the monetary tea leaves for 29 years and I can tell you that nothing is ever black or white. But knowing what M2 is doing can help in fleshing out a picture of the macro forces at work in the economy.Scott Grannishttps://www.blogger.com/profile/14028519647946868684noreply@blogger.comtag:blogger.com,1999:blog-6616959642391988608.post-34516751763381420932009-06-18T16:20:18.642-07:002009-06-18T16:20:18.642-07:00Scott,
I think we have taken this conversation a...Scott,<br /><br /> I think we have taken this conversation as far as it can go. I have my questions about whether or not M2 is mean reverting-- it very well might be. I will leave you with a question, though. While M2 might be the best measure of money does that necessarily make it a GOOD measure.<br /><br /> Thanks again for your responses.von Miseshttps://www.blogger.com/profile/09976747088139028291noreply@blogger.comtag:blogger.com,1999:blog-6616959642391988608.post-41071280580475298002009-06-18T11:48:31.620-07:002009-06-18T11:48:31.620-07:00Matthew: The question is whether the ratio of nomi...Matthew: The question is whether the ratio of nominal GDP to M2 is mean-reverting. I don't have the data at hand that goes back before 1952. I'm not sure what it looks like. I'm not sure this is important anyway. But the fact that the ratio has not changed much on balance over many decades is a good reason to believe that there is some kind of stable relationship over time between M2 Scott Grannishttps://www.blogger.com/profile/14028519647946868684noreply@blogger.comtag:blogger.com,1999:blog-6616959642391988608.post-87366437287717116552009-06-18T06:04:41.429-07:002009-06-18T06:04:41.429-07:00Scott,
We can test whether or not M2 is "me...Scott,<br /><br /> We can test whether or not M2 is "mean reverting" and or stable. If you give me the data points (I am a statistical geneticist) I can run some analyses. Do you have data beyond 1959?<br /><br /> Also, full disclosure: I don't believe much, if any, parts of the financial system are normally distributed. Making most statistical analyses moot, but its fun to look at von Miseshttps://www.blogger.com/profile/09976747088139028291noreply@blogger.comtag:blogger.com,1999:blog-6616959642391988608.post-71263566123936777542009-06-17T19:08:04.473-07:002009-06-17T19:08:04.473-07:00Matthew: perhaps my choice of "stable" w...Matthew: perhaps my choice of "stable" was not a good description. But I'm tempted to think that M2 velocity is mean-reverting over long periods. That would give it some measure of "stability," would it not? Surely as compared to the behavior of M1.Scott Grannishttps://www.blogger.com/profile/14028519647946868684noreply@blogger.comtag:blogger.com,1999:blog-6616959642391988608.post-58092629650854666922009-06-17T18:24:15.645-07:002009-06-17T18:24:15.645-07:00Alstry,
Look at some of the graphs posted by Sco...Alstry,<br /><br /> Look at some of the graphs posted by Scott(http://scottgrannis.blogspot.com/2009/06/households-balance-sheet-update.html) Our ratio of debt to wealth has not changed all that much in recent years.<br /><br /> I could quote economists who have extremely positive views on our economic futures, too. Quoting an article is not as impressive as quoting statistics.<br /><br />Scott,<von Miseshttps://www.blogger.com/profile/09976747088139028291noreply@blogger.comtag:blogger.com,1999:blog-6616959642391988608.post-53791279047389994002009-06-16T21:26:49.129-07:002009-06-16T21:26:49.129-07:00Scott,
I'd be curious how this looks over the...Scott,<br /><br />I'd be curious how this looks over the past 2-3 years. Specifically, I'd be looking for a significant change around the beginning of the banking crisis last fall.<br /><br />Consumers are obviously de-leveraging as well, which will probably slow the reversal of the decline in velocity. Once this slowing reverses, we'll be well on our way to GDP growth again.Unknownhttps://www.blogger.com/profile/02792601194070134793noreply@blogger.comtag:blogger.com,1999:blog-6616959642391988608.post-42712522130592795072009-06-16T18:30:29.165-07:002009-06-16T18:30:29.165-07:00The Fed is engaged in the biggest quantitative eas...The Fed is engaged in the biggest quantitative easing campaign in the history of the world, having almost doubled its balance sheet since September, and with the monetary base having grown 125% over the same period.<br /><br />As I have explained in many prior posts, that massive easing has for the most part been necessary to offset the huge increase in money demand. That's why inflation has Scott Grannishttps://www.blogger.com/profile/14028519647946868684noreply@blogger.comtag:blogger.com,1999:blog-6616959642391988608.post-14319601218821412682009-06-16T18:20:39.038-07:002009-06-16T18:20:39.038-07:00Scott,
Can you provide some basis for your statem...Scott,<br /><br />Can you provide some basis for your statement:<br /><br />With the Fed now in the midst of a massively aggressive easing campaign, we could possibly see a big increase in velocity, should the demand for money again start to fall at the same time the Fed is willing to oversupply the system with money. <br /><br />Credit card companies are scaling credit way back....way way back.<alstryhttps://www.blogger.com/profile/16025398896639165994noreply@blogger.comtag:blogger.com,1999:blog-6616959642391988608.post-55408099225316828462009-06-16T18:04:58.496-07:002009-06-16T18:04:58.496-07:00Matthew: Thanks for the comment, as I realize I re...Matthew: Thanks for the comment, as I realize I really should have explained some of the big swings in velocity. M2 velocity surged in the early and mid-1990s as a result of FIRREA legislation which produced profound changes in the way the banking and S&L industries operated. S&Ls virtually disappeared, and their role was effectively taken over by the institutional bond market. This meantScott Grannishttps://www.blogger.com/profile/14028519647946868684noreply@blogger.comtag:blogger.com,1999:blog-6616959642391988608.post-29374243981682064292009-06-16T17:38:31.004-07:002009-06-16T17:38:31.004-07:00Matthew,
There is NOT enough money in
America to...Matthew,<br /><br />There is NOT enough money in <br />America to pay off debt....as a matter of fact America is running out of money trying to pay down debt.....<br /><br />As people are forced to liquidate assets to pay off debt....expect asset values to implode...especially house values.<br /><br />As house values implode, expect tax revenues to the state, especially California, to evaporate alstryhttps://www.blogger.com/profile/16025398896639165994noreply@blogger.comtag:blogger.com,1999:blog-6616959642391988608.post-82306634201314864832009-06-16T17:26:22.071-07:002009-06-16T17:26:22.071-07:00I would argue, based on your graph, that M2 Veloci...I would argue, based on your graph, that M2 Velocity is anything but stable. Look at those swings, if you analyze the data points I am guessing the STD Dev.'s are huge. Just because a graph is created where the start point and end point are similar does not make what the graph is measuring stable.<br /><br />I am with you however in seeing this graph as a positive. Regardless of whether or von Miseshttps://www.blogger.com/profile/09976747088139028291noreply@blogger.comtag:blogger.com,1999:blog-6616959642391988608.post-32439724470405972272009-06-16T12:18:01.805-07:002009-06-16T12:18:01.805-07:00Bill,
It is not death...think of it as a rebirth....Bill,<br /><br />It is not death...think of it as a rebirth.<br /><br />I am aware of a number of people in my circle who have declared bankrupty and made a few hundred million relatively shortly thereafter.alstryhttps://www.blogger.com/profile/16025398896639165994noreply@blogger.comtag:blogger.com,1999:blog-6616959642391988608.post-70138188442545809062009-06-16T12:13:05.435-07:002009-06-16T12:13:05.435-07:00Translation: "We're all going to die!!&q...Translation: "We're all going to die!!"Billhttps://www.blogger.com/profile/05145490918994594519noreply@blogger.comtag:blogger.com,1999:blog-6616959642391988608.post-89278104220289069102009-06-16T11:49:59.495-07:002009-06-16T11:49:59.495-07:00The big drop in velocity is simply the result of c...The big drop in velocity is simply the result of consumers and businesses deciding to hang on to their money instead of spending it.<br /><br />You and I agree completely on this one!!!!<br /><br />The problem is most of that savings is going to pay down DEBT.<br /><br />The even BIGGER problem is that there is MUCH MORE DEBT than savings...so as the economy continues to contract....we will reachalstryhttps://www.blogger.com/profile/16025398896639165994noreply@blogger.com