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To: gpowell who wrote (47466)	1/19/2006 6:10:14 PM
From: GraceZ	Read Replies (1) \| Respond to of 306849

Velocity, eh? I once asked ahhaha about a money multiplier measure that the Fed maintains and I got this pretty humorous reply: A bunch of useless nonsense invented by clowns who like to do arithmetic. Sometime ago on my thread I lambasted some idiot for making a big deal about some ridiculous measure which purported to do this or that, but the measure was a division of two unrelated non-categorical quantities. It was like saying South Carolina generates 50 million bales of cotton each year and adds 50,000 miles to its roads each year so South Carolina is fast because it makes 1000 bales per mile. Let's say you divide currency by reserves. That gives you one of the money multipliers. What does it mean? Dollars supported by reserves. Oh now you get it, but you shouldn't because I sneaked the word "supported" in there to try to make you think the term multiplier was meaningful. That is, if the multiplier is declining, does that mean people don't want to create demand deposit through loan making relative to the amount of reserves being made available? Not necessarily. In the old days we used to have another term that was similar in concept. It was called "velocity", the "money velocity". Originally it meant the velocity of turnover of money, currency, i.e., how quickly dollar bills went through stores and factories and ended up back at the mint or federal reserve bank. Then it evolved into meaning the ratio of currency to GNP, then to money supply to GDP, then to total money to drugs consumed. That's when they gave up on velocity. Now they call it multiplier. Idiots all. Here's the measure I asked him about: research.stlouisfed.org