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To: Sam who wrote (4093)	6/1/1998 6:32:00 PM
From: Frodo Baxter	Read Replies (1) \| Respond to of 9980

>How is that growth tracked, and how reliable are the methods used? You're right, currency turnover is very rapid indeed. But it's not like they go down to the corner liquor store and ask the clerk how much cash is in the register. I would assume, like you suggested, that they use the amount in circulation and make adjustments thereof (i.e. dollars that leave the country to be used as "hard currency" elsewhere). Systemic errors don't matter, as long as they are consistently applied. In any case, you're only talking about a portion of M1. M1 also includes checking accounts. M2 includes savings; M3 includes jumbo CDs; L includes short Treasuries. On the face of it, none of these would suggest measurement difficulties. Again, consult the Fed link I provided for all the gory details. >Please elaborate. I'm being dense, I'm sure, but I didn't really follow this, or the exchange that followed. Okay, what I did was compute the aggregate debt to money ratio. This is like the debt to equity ratio you know and love, only different <g> (equity includes much more than just cold hard cash). So anyway, using Fed data, this ratio was around 1.7 from the sixties till the early eighties. Then it started increasing (more leverage was being employed) until it reached a peak of 2.45 in late 1994. Since then, it is working its way back down (less leverage is being used) at approximately the same slope as on the way up. Right now, it's 2.23. In other words, leverage was walking down the prairie, came upon a mountain, climbed it all the way to the top, and is already a quarter of the way back down again. Edward's liquidity and leverage rationales are very seductive, but do not stand up to careful scrutiny of the underlying assumptions and data. Ultimately, his theory is quite implausible. Inasmuch as no one has yet challenged my assertions, I can only conclude that a) the bears on this thread are more interested in Edward's final conclusions (which confirmed what they already knew <vbg>) rather than the method in which they were deduced or b) they don't fully appreciate the finer points of his argument or my counter. Or maybe my lucidity in thought and metaphysical correctness has stunned them into silence. Nah. 8^)

To: Sam who wrote (4093)	6/1/1998 8:31:00 PM
From: Zeev Hed	Read Replies (2) \| Respond to of 9980

Sam, the Central bank knows exactly how much currency is in circulation, they take what was printed (minted) and subtract what was called back in and destroyed. All other factors in all the M's are calculatable from bank's report and the treasury. So to follow these is not too difficult (and the Barrons even gives a summary every week in their "lab"). Money velocity is much more difficult to estimate. In principle you should be able to divide the GNP by M1 (currency and "fast" bank accounts) and call it velocity. However the velocity of currency and checking accounts is not the same. Still you should get a good average. One of the problems you face is that a big chunk of the currency is actually in millions of mattresses all over the world (replacing gold as a "store of value) and the velocity of that hoard is nil. Why is it important to know the velocity? I believe that when velocity changes, the growth of M1 (and the other M's) is no longer simply related to the growth of the economy. I am postulating that the current malaise in world's economies is causing a slowdown in money velocity here (more green backs are going into mattresses or being used overseas in other economies as exchange means). If our economy is to continue and grow (without inflation), money should be created at the rate of growth of the economy (or you get a liquidity shortage, if the growth is slower, or inflation if you create more money chasing the same quantity of goods). If my thesis that velocity is declining is correct, than growth rate of the money supply above the growth rate of the economy is required. How much, by the same amount that frozen currency (frozen out of the US economy) has increased multiplied by our domestic velocity. Zeev