It´s nice every month to get the e-mail from the Center for Financial Stability announcing the update of the Divisia broad money series.
Here I use it to explain events surrounding the great recession and the slow recovery.
The charts indicate that with both broad money growth and velocity “dropping down the chute”, nominal spending (NGDP) can´t do anything except dutifully follow!
And over the last few years, while velocity has basically regained its pre-crisis level, broad money growth has remained much lower. The implication is that nominal spending is growing at a significantly lower pace, keeping the economy “trapped in a depressed state”.
In a criminal investigation, often the good strategy is phrased as “follow the money”. Many economists, in trying to “explain” the slow growth prefer to search for “residual seasonality“!
Update: Rereading this 15-month old post, I think it gives support to the arguments made here fo the “monetary view” of the GR:
Bottom line: The oil shock of 07-08 was a trigger for the Fed´s actions. And these actions were inimical to the health of the economy, already weakened by the fall-out of the house price bust. It is clear from the statements, minutes and now transcripts for 2008 that the Fed´s focus was on headline inflation, and since that was being significantly impacted by oil prices, the “public” anticipated monetary policy tightening (a rise in rates). No wonder NGDP dropped significantly (plunging after July 08).