Replies to post #397948 on Zeev's Turnips Patch-No Politics (ZEEV)

[otraque]

Concur regards M2 for sure but i am pondering another matter, MarketMaven and you have IMT Opinions/IMTO.
I have tried transcendental,turnipian, theoric?? Have not a clue:)

[Elroy Jetson]

Although Monetarists call M2 the "money supply" it is actually a summation of money and debt, mostly debt.

Calling M3 the "debt supply" would be more nearly correct.

What you say makes sense if you accept, the conventional Monetarist nonsense that, growth in the economy is dependent upon growth in debt.

This concept is both wrong and dangerous.

This foolishness provided the basis for growing our debt levels ever faster than the growth in income, as shown in this chart.

http://home.pacbell.net/nstuart/Debt_Federal_v_Total.gif

With each passing year, each dollar of additional debt is associated with less and less growth - primarily because debt is not the cause of growth.

Eventually the economy can support no further debt. Our economy becomes ever more dyspeptic as we reach that point.

[Elroy Jetson]

I think an analogy may help.

People often use total electrical usage as a measure of the health of the economy. Like debt, electrical usage is loosely associated with economic activity and growth.

After the spike in oil prices during the late 1970s, factories and other users of electricity became more efficient. In the following decades, growth in electrical usage was stagnant and often declined. Those who viewed this as an indication of serious problems with the economy were misled.

If the Fed had promoted increased usage of electricity, or subsidized the cost of electricity - paid for with a tax on savers, economic growth would not have been enhanced - indeed it would have increased costs and made America less competitive.

While this may seem obvious to many, the same people who find this concept absurd naively believe growth is enhanced if the Fed promotes the use of debt, or subsidizes the cost of borrowing money - paid for with a tax on savers.

Debt creation is loosely associated with economic activity and growth, just like electrical usage is, but the economy would be more efficient and enjoy lower costs if America weaned itself from excessive reliance on debt.