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d and blue are very similar as if the blue line was produced in part by revising the gold line could be data for the gold line is from the historical statistics published in 1975 date for the blue line is from fred and was last updated in 2012 some 46 years after the last data item in that series so anyway what i m looking at now is a repeating peak and decline with peaks in 1880 and 1981 not exactly a hundred year cycle but not far off source file velocity 1870 2013 xls at google drive see also my another one from glasner s about page posted by the arthurian at 4 00 am 2 comments saturday december 13 2014 velocity the long run and what counts the federal reserve has a limitless supply of money just waiting to be issued into the economy why don t we count that money when we figure velocity because it s not in the economy that s why the same is true of the money we in the private sector accumulate but do not spend it s not in the economy it ought not be counted when we figure velocity this is what fred has on velocity 1869 to 2014 look at the older data first there is a peak a few years after 1875 followed by a long sweeping downtrend that gradually flattens then finally explodes in the colors of the newer data there is a small peak shortly before 1925 a small decline shortly after 1925 and an up down up wiggle just before 1950 those three are world war one the great depression and world war two it is true that compared to nearby tiny changes in the purple line those three are significantly large but in the big picture they are not big events compared to general trends depressions and world wars are trifles for velocity at least this is the case for the economy as a whole i think the newer data begins in 1959 we have a choice we can focus on the blue line which seems to continue the flattened trend stretching it to the whole of the 20th century or we can focus on the green line which seems to continue a repeating wavelike pattern of peak and decline the red line odd man out just doesn t seem to fit still it shows a pretty definite increase until the crisis so maybe it speaks on behalf of the green line and the wavelike pattern but then after 1981 the green line falls while the red rises to a new and more extreme peak it s not tidy it s not inexplicable the lines show different things they consider different pools of money the blue and green lines measure much larger pools of money than the red they include all the money measured by the red line and other money besides when you divide by these bigger numbers to get velocity the velocity number comes out on the low side divide by the smaller number that the red line uses and the velocity number is on the high side but remember we re measuring velocity a measure of how often a dollar is spent we spend the dollars in our pockets we don t spend the dollars in our piggy banks the velocity of piggy bank money is zero does it really make sense to include the money we don t spend when we re figuring how often the average dollar is spent when we figure average driving speed do we include parked cars in the calculation the velocity of the money we actually spend is much higher than the number we get by including the money parked in savings in our calculations much higher as the red line is much higher than the green and blue it matters because some people have no savings posted by the arthurian at 7 18 am 2 comments friday december 12 2014 this should come as no surprise i m starting to like larry summers i went out of my way this morning to read one of his at vox reflections on the new secular stagnation hypothesis from this past october summers writes of the ferir the full employment real interest rate a decline in that rate summers says coupled with low inflation could indefinitely prevent the attainment of full employment john bull can t stand 2 percent i guess anyway summers writes laubach and williams 2003 have attempted to estimate the ferir using data on actual real interest rates and measures of where the economy is relative to its potential while many issues can be raised with respect to their calculations figure 4 illustrates their estimate of a substantial long term decline in the ferir figure 4 us natural rate of interest sources thomas laubach and john williams measuring the natural rate of interest and summers writes of the imf they have reached conclusions similar to the ones i have reached here that the ferir has likely declined in recent years this observation together with the observation that lower us inflation and in europe declining rates of inflation make it more difficult than previously to reduce real interest rates this in turn suggests that the zero lower bound and secular stagnation are likely to be more important issues in the future than in the past okay a low ferir is a problem because of the difficulty of lowering it further this sounds like an unsustainable strategy no so could something be done to push the ferir to a higher level well look at the figure 4 graph it wanders but it wanders on a downhill trend the two largest increases occur one in the early 1960s and one in the mid to late 1990s gee in both of those periods the economy was strongly improving okay well this supports summers contention that a falling ferir is a problem but look at that second increase see when it occurs it comes just after the downtrend in the debt per dollar ratio and just when that ratio starts rising again graph 1 accumulated total debt per dollar of spending money this should come as no surprise posted by the arthurian at 5 58 am 3 comments thursday december 11 2014 boiling it down a little too much image source dr james g wellborn marc thoma via lars p syll it s the time of year when analysts and pundits begin marking their beliefs to market telling us what they got right or wrong in the previous year in that spirit here are some of the things i got wrong about the great recession the lesson for me is that if you want the inflation rate to increase demand has to increase that requires more than simply creating a bunch of reserves that sit idle in banks listen carefully to milton friedman in free to choose when a country starts on an inflationary episode the initial effects seem good the increased quantity of money enables whoever has access to it nowadays primarily governments to spend more without anybody else having to spend less jobs become plentiful business is brisk almost everybody is happy at first those are the good effects but then the increased spending starts to raise prices catch that last bit it is spending that influences prices not the existence of money that s what friedman said if anybody thought inflation was caused by printing money i guess they boiled the idea down a bit too much posted by the arthurian at 4 00 am 5 comments wednesday december 10 2014 this event jw mason monday december 8 2014 the future of monetary policy according to paul krugman elizabeth warren and me i will be speaking at this event tomorrow i ll post video if when it becomes available pretty good company that the link takes you to the economic policy institute epi the event is managing the economy main street wall street and the federal reserve here s the blurb today pressure is building on the federal reserve to use monetary policy to raise short term interest rates a move that could short circuit a still far from complete economic recovery proponents of this move argue it is needed to avert wage and price inflation and prevent excessive risk taking in the financial sector but there are serious questions about this argument and there are new tools available to the fed to influence wall street and the wider economy these tools and better economic analysis could allow the fed to better target specific concerns regarding wall street financial risk taking while minimizing unnecessary drag on the main street economy stop dammit don t take a side work out the problem let s say the blurb is right pressure is building on the federal reserve to use monetary policy to raise short term interest rates a move that could short circuit a still far from complete economic recovery let s say we don t short circuit the stillfarfromcompleteeconomicrecovery by raising short term interest rates so then presumably the expansion of credit use continues and economic growth continues gaining momentum and the growth of accumulated total debt continues gaining momentum see the problem if an excessive accumulation of debt hinders economic growth then the expansion of credit use which boosts economic growth undermines economic growth because accumulated total debt remains at an excessive level and increases even more more from the blurb proponents of this move argue it is needed to avert wage and price inflation and prevent excessive risk taking in the financial sector let s say we set those concerns aside let s say we think a little more inflation might be a good thing i don t think that but let s say and let s say we for some reason are not concerned about excessiverisktakinginthefinancialsector let s set these concerns aside are we then free to leave interest rates low encouraging growth by encouraging credit use we are not free to do so because encouraging credit use in our experience leads to the growth of accumulated debt leads to growing financial cost undermines our standard of living undermines profit and productivity and destroys economic vigor the history of our economy in the last 60 years is a history of encouraging credit use our policies encourage the use of credit and accelerate the accumulation of debt our policies fail to accelerate the repayment of debt as a result private sector debt grew to unprecedented levels and as a result of that public sector debt grew enormously the epi blurb mispresents our options clearly shall we keep interest rates low to promote growth or shall we raise interest rates to prevent inflation and excessive risk no the interest rate discussion is a discussion about positions on the phillips curve but the phillips curve has moved from a good place to a bad place there are no more good places on the phillips curve it is pointless to fight over our place on the phillips curve when there is no good place to be had the better fight the better discussion is to point out that it was the growing accumulation of debt that pushed the phillips curve to a bad place that by reducing the accumulation of private sector debt we can bring the phillips curve to a better place that we can reduce the growth and accumulation of debt simply by creating policies that encourage the repayment of debt and that accelerating the repayment of debt is a way to prevent inflation and reduce risk accelerated repayment of debt is an alternative to raising interest rates a policy that accelerates the repayment of debt will allow us to keep interest rates low enough to get the economic growth we need related posts sumner engages the crystal ball an arthurian future posted by the arthurian at 5 56 am 2 comments tuesday december 9 2014 a blind eye barkley rosser in none of these 1945 46 1982 83 or 2007 10 did we see either deflation or wage declines however in one of them there was only a very brief downturn one quarter at the end of ww ii one of them there was a pattern that resembled 1921 a sharp fall in output with sharply rising unemployment followed by a rapid rebound the reagan recession and then the deep fall followed by the slow recovery in the most recent episode what differentiates these well monetary policy at the end of ww ii in contrast to the end of ww i there was no tightening of monetary policy in the reagan recession this clearly was brought on by the extremely tight monetary policy of volcker that had been put in place to crack entrenched inflation finally why the slow recent recovery well i think there is more going on but some of it has indeed been the inability of the fed to provide much stimulus anything else different graph 1 accumulated total debt as a multiple of gdp graph 2 accumulated total debt as a multiple of spending money graph 3 accumulated total debt as a multiple of base money graph 4 accumulated total debt i don t read lots of barkley rosser maybe when he says well monetary policy he is referring not only to money and interest rates but also to credit growth and accumulated debt if so then i have my title wrong but i don t see any differentiation of money from credit in rosser s remarks i don t see anything about accumulated total debt i see no tightening i see extremely tight and i see the inability of the fed to provide much stimulus the last of those is a reference to the idea that interest rates are at the zero bound so that the fed cannot lower interest rates enough to get us out of a tight money situation everybody knows the phrase tight money so nobody has to stop and think about it well i want you to think about it just for a minute think about this tight relative to what judge the tightness of money by comparing money to accumulated total debt posted by the arthurian at 4 00 am 1 comments sunday december 7 2014 19 net interest and miscellaneous payments on assets is a measure of all the interest that is in gdp okay suppose we take it out of gdp graph 1 gdp blue and gdp with net interest taken out red not much difference net interest is a small number of course it is it s net by the way we saw two measures of net interest as a percent of gdp last thursday graph 2 net interest and miscellaneous payments on assets as a percent of gdp less than 9 of gdp on average maybe 4 on day 18 i looked at the effective mortgage interest rate a year and more back i looked at the effective interest rate on federal debt the next graph shows those two rates together they share a path graph 3 effective interest rates federal red and mortgage blue rates effective rates are calculated by working backward from dollars of interest paid and dollars of debt owed my numbers are not on the high side reproduced here steve waldman s effective federal rate peaks at 7 5 my number matches his and mason and jayadev 2012 show household debt peaking above 12 5 my mortgage rate peaks at less than 11 a creditworthy government typically pays a lower interest rate than businesses do a homeowner typically pays more than a business so i want to take the average of the federal rate and the mortgage rate and use that number as a ballpark estimate for the effective rate of interest on business debt graph 4 the effective nonfinancial business interest rate green an estimate there ya go the green one is my estimate of the effective business interest rate now we ve got an interest rate for business debt and we can get numbers for the level of business debt from fred so i can calculate estimate the total amount of interest paid by businesses the gross amount of interest i should say gross interest as opposed to net interest i will exclude financial debt as a rule i never exclude any piece o...