3 Comments

re: "People forget that inflation is a monetary phenomenon!"

And velocity (demand for money), is sometimes neglected in the "equation of exchange"

https://fred.stlouisfed.org/data/PMSAVE.txt

Personal savings, U.S. Bureau of Economic Analysis

Release: Personal Income and Outlays fell from 2021-03-01 $5732.7 to 2022-11-01 $461.2

How much dis-savings is left?

https://fred.stlouisfed.org/series/PSAVERT

Expand full comment

Secular stagnation, chronically deficient aggregate demand, was also predicted in 1980. Professor emeritus Leland James Pritchard (Ph.D., Chicago Economics 1933, M.S. Statistics) never minced his words, and in May 1980 pontificated that:

“The Depository Institutions Deregulation and Monetary Control Act will have a pronounced effect in reducing money velocity”.

The "Great Moderation" simply was the result of an increasing volume and proportion of time deposits relative to transactions deposits in the commercial banking system. It also reflected an increase in FDIC insurance levels.

Expand full comment

To target N-gDp is to ignore stagflation, business stagnation accompanied by inflation. The stagflation that was predicted in 1961, started at the end of 1965 (and for the reasons given by Dr. Leland James Pritchard, Phi Beta Kappa, Ph.D. Economics, Chicago 1933, M.S. Statistics Syracuse.)

Banks don't lend deposits (from a system's perspective). Deposits are the result of lending. Economists simply can’t differentiate between an individual bank and the system. The equation, the capacity of a single bank to create credit as a consequence of a given primary deposit (and newly created deposits flow to other banks), is also applicable to a nonbank, financial intermediaries. A bank: L = P (1-d) & A nonbank: L = S (1-s)

But this comparison is superficial since any expansion of credit by a commercial bank enlarges the money supply, enlarging the system, whereas any extension of credit by an intermediary simply transfers ownership of existing money within the system (a velocity relationship).

The impoundment of monetary savings shrinks gDp. Secular stagnation is a deceleration in the circuit income velocity of funds.

Expand full comment