Larry,
Thanks for your reply, and elucidation. (Thanks also to Zeev, Don, Mike, and everyone else who was as interested in the Edwards interview as I was.)
<<In practice, tracking L growth is not much different than M3 growth, and both have recently entered the low double-digits, continuing a steady march that began, oh, in 1993 or so. This is disturbing, but only slightly, and only if you're a monetarist. Namely, none of the doomsday predictions have been borne out: no inflation, no dollar depreciation, and no increase in the price of commodities or gold (this is the Kudlow argument, btw).>>
This is part of the problem that I have with these things. How is that growth tracked, and how reliable are the methods used? When I put a dollar in the bank, they keep a few cents of it on reserve, then they lend the rest out someone to [buy stocks, bonds, finance a car, a house, a factory, whatever xxx]. The dollar then moves from the guy who has built the factory to his suppliers, employees (whomever), who may put it in his bank or who may spend it at the local bar, the owner of which uses it to buy more beer, to pay his employee, to put it in his bank. The dollar keeps moving around and around. How often is it counted? I suppose that this is what people are talking about when they talk about "velocity", but it has never been clear to me how anyone could adjust for this sort of thing. How does one get an accurate measure of what is "out there"? Or does the number actually come from what is produced on Treasury's printing presses?
<<What's really interesting is if you plot the debt to L ratio over time. From 1959 to 1983, that ratio has hovered around 1.7, then started increasing to a peak of 2.45 around 1994-5. It's been dropping ever since. Right now, it's 2.23. Too much leverage? I think not.>>
Please elaborate. I'm being dense, I'm sure, but I didn't really follow this, or the exchange that followed.
Best,
Sam |
