Understanding the economy´s predicament

The preliminary output report for the last quarter of 2011 is out.

A set of pictures permits complete understanding of the economy´s predicament and indicates the “natural monetary solution”. Take a guess as to the “solution”.

2 thoughts on “Understanding the economy´s predicament

  1. The last graph on Money Growth is hard to read as the colour of the legend needs to be distinct. Can you change colours or explain which line is which?.

    Also, a a layman trying to understand the conclusion – are you suggesting there is a need to increase the velocity of money? (tax the rich and re-cycle to spin the economy) – I think so.

    The alternative of the actual printing of money into consumer hands will be highly inflationary on some sectors and cause injury to many in how it is distorted.

    Some/alot of debt write off (western debt has gone from 167 per cent of GDP in 1980 to roughly 314 per cent today if the liabilities of households, companies and governments are added up, http://business-standard.com/india/news/abheek-baruashivom-chakravarti-deconstructing-debt/462543/), is an alternative too as it frees consumer spending to consumables (ie good for economy) and the debt was ‘fractional’ monopoly money anyways. Should be able to reverse the journal entry on bank balance sheets and let banks operate with negative equity since the owners have pullout their stakes a long time ago anyways. (I would have if I owned a bank).

    • What the chart shows is that after mid 2008 monetary policy became highly contractionary. This is seen from the observation that money growth dropped at the same time that money demand was rising (velocity falling).

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