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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory
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To: pogohere who wrote (83717)7/17/2007 3:41:07 PM
From: Elroy Jetson  Read Replies (2) of 110194
 
Ponzi-schemes, such as a credit-bubble, are a confidence trickster's game. Inevitably, confidence is suddenly lost and the game is up. Monetarists wryly refer to this "moment of awakening" as "a decline in monetary velocity".

Many Monetarists remain convinced that the Ponzi-scheme can be sustained if only enough new money can be printed to offset the realization that those in the game are dupes who have already lost their money. Zimbabwe is an example of how successful this strategy is - it turns the economy into a farce, a hollow shell.

1) To what do you attribute the rapid decline in monetary velocity?

In short, a realization that the credit bubble is over. Once the puffed-up price of an asset begins to fall, it will not attract buyers until it reaches an economically rational level. Offering free-credit to buy the asset at the current reduced price, although still at an uneconomic level, will be peculiarly unsuccessful.

2) I am intrigued with your reference to the rapid increase in money which occurred. To what are you referring?

Milton Friedman correctly documented the increase in money supply during the early years of the Great Depression. But he pointed out that this increase in money was insufficient to offset the decline in monetary velocity. His mistake was in imagining that dropping money from dirigibles would have improved the situation.
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