John, hope your exam came out hokey-dokey.
Jon, the reason that the various M(s) put people to sleep is that they're kind of goofy primarily because nobody can agree exactly how many dollars are sloshing around in each money pot. One guy's M1 is going up but his M2 is going down, but another guy's M1 includes stuff from the other guy's M2, so HIS M1 going down, but his M2 . . . blah, blah, blah. When I was brilliant oh so many years ago, I did multiple regression analysis on this crap and my professor thought I actually understood it. Which I did,but only from my little window on the world which didn't tally with anybody else so it basically got me a good grade and wasn't worth a damn in the real world.
Today's real world was best exemplified by the '87 crash when the Fed got all the money center banks together and said, in so many words, "make it so", i.e., cover everybody with dough and we (the Fed) will make you whole, which they did, and a few days later everything was cool cause everybody got the notion that there was money to go around. The whole thing is very weird and has more to do with psychological confidence than all the M's stacked together. Don't worry: the Fed got the message from the 30's. We may take a powder for a different reason but not for something as simplistic as insufficent liquidity in the system. That at least we can handle. Best, Mike Doyle |
