–Why the slow recovery?

The debt hawks are to economics as the creationists are to biology.

Recessions and recoveries ultimately are associated with money, and more specifically with money growth. In general, less money growth = less economic growth. (That actually is something of a tautology, since economic growth is measured in money.)

There are several definitions of money, most differing on the basis of liquidity, the ease of converting to currency. The most liquid form is called M1, which consists of currency and checking account deposits.

The government no longer measures the less liquid forms, M3, L and the most inclusive form: Debt of Domestic Non-Financial Sectors. And for many reasons, the supplies of the various money forms do not move together. For instance, there are periods when M1 goes up or down more than M2, even though M1 is part of M2.

I found an interesting pattern relative to recessions. In the following graph, you see a strong tendency for one form of money, Federal Debt Held by the Public, to grow more slowly before recessions, then grow quickly during recessions, then resume growing more slowly after recessions.

M1 exhibits a similar, though less consistent pattern, and M2 is less consistent yet. One consistency is: Following every recession, at least one of the money forms grows at an increasing rate — every recession except the most recent one:

Here, despite (or because of) worries about deficits, every measured form of money has shown a sharp decline in growth rate. Perhaps this overall decline in money growth is responsible for the slowness of the recovery — yet another bit of evidence that debt fear has hurt our economy, and increased federal spending is desperately needed.

Rodger Malcolm Mitchell

No nation can tax itself into prosperity

3 thoughts on “–Why the slow recovery?

  1. Perhaps above explains our boom and bust period of our business cycle.

    I’d like to see an overlay of the S&P500 on this. When treasuries fall, stocks go up. Is M2 also money market funds? It is.

    So does our interest rate policy impact our borrowing for productive purposes (which then lead to consumption)? Or does our interest rate policy affect our stock market?

    Looks to me that government is working to make sure the casino stays open and to let the rich get richer. And you only get rich when there are moves in the market, i.e. the business cycle.

    Thus, keep pushing for gyrations in interest rate policy that has no bearing on the price of money based on supply and demand (savings.) No, just goose the market and get rich.


  2. Borrowing = lending. Interest rates affect both equally.

    There is nothing wrong with the rich getting richer. Benefiting the rich usually benefits the poor in a capitalist, monetarily sovereign nation. See: GAP

    Rodger Malcolm Mitchell


  3. The rich get richer is not the problem. It is “how” they got richer. If they put their assets to work to grow their business they end up employing more people, creating a product that maybe cheaper, better, more assessable to all. It’s what we want our production to do. Make everyone’s life better. And if someone gets rich off that, who cares?

    When the price of money is manipulated only for the cause to make the rich richer without making production increase or our way of life better that’s what I have a problem with. The game is rigged. It shouldn’t be. The bigger thing you kill today the more your family eats. That is what made this country strong. We’ve lost that. We now depend on banks and the government to set policy and we’re just their slaves doing their bidding.


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