And what would this $hriveling thing be?
The M1 Money Supply multiplier, which has been below 1 for over a year, and, after a dead cat bounce, is now at .79, with every indication of falling further.
What this means is
for every $1 increase in the monetary base – the money supply only increases by 79 cents.
And it's not just here.
"Money multipliers have collapsed everywhere. What M3 is telling us is that confidence is missing. I don't see any way to stabilise M3 in such circumstances," he said.
Professor Tim Congdon from International Monetary Research called on the ECB to buy state bonds in a blitz of QE to insure against a double-dip recession. He said: "2010 is going to be very difficult."
Could this long range drop be the behind-the-scenes actor that has been responsible for lagging GDP growth over the period?
At any rate, this is NOT a good thing. (Emphasis added)
The chain of causes of the Great Depression thus leads back to the restrictive monetary policies of the Federal Reserve System. Those policies led to fear of bank collapses which caused the money multiplier to decline thus leading to a decrease in the money supply. This decrease in the money supply led to deflation which raised the real interest rate to extraordinary levels. This drastically discouraged investment purchases causing the level to decline by about 90 percent. Businesses found they were not selling as much as they had been producing. This led to cutbacks in production and layoffs of the labor force. The decline in employment then resulted in reduced incomes and consequently reduced consumer purchases leading to further cutbacks in employment and reductions of income.
One of the differences between the Depressions of 1921 and 1929 was that in '21, deflation, though deep, was a specifically U.S phenomenon. In the 30's, it was world wide. Like it is now.
Every new thing I learn just increases my pessimism.