Thinking about how M2 growth impacts the capital markets, I started thinking about the recent housing market bubble.
Looking at the M2 graph, I notice that there wasn't much of a pull back around 2006 as the housing market began to crumble. Isn't there usually a reduction in the money supply that causes the bubble to burst? That is usually a big part of the ABC theory as I understand it.
Is there a different monetary aggregate that shows this more accurately (when looking at the housing collapse) or is M2 money growth here so substantial where the, seemingly, small reduction around 2006 would have a significant impact on the housing market?
@ SeekingWisdom. Methinks that a typical Wenzelian reply would be that it's not the aggregate M2, but the rate of new money production. And he's posted a lot of charts showing how manic Bernanke has been with shutting the spigot all the way off and then turning it all the way back on again when things start to turn South.
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Robert,
ReplyDeleteThinking about how M2 growth impacts the capital markets, I started thinking about the recent housing market bubble.
Looking at the M2 graph, I notice that there wasn't much of a pull back around 2006 as the housing market began to crumble. Isn't there usually a reduction in the money supply that causes the bubble to burst? That is usually a big part of the ABC theory as I understand it.
Is there a different monetary aggregate that shows this more accurately (when looking at the housing collapse) or is M2 money growth here so substantial where the, seemingly, small reduction around 2006 would have a significant impact on the housing market?
It's a reduction in the rate of growth in the amount that matters, not necessarily a reduction in the amount itself.
Delete-Bharat
@ SeekingWisdom. Methinks that a typical Wenzelian reply would be that it's not the aggregate M2, but the rate of new money production. And he's posted a lot of charts showing how manic Bernanke has been with shutting the spigot all the way off and then turning it all the way back on again when things start to turn South.
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ReplyDeleteOctober 12, 2007
ReplyDeleteDow Jones - $14,093.08
Gold - $748.10/oz.
Silver - $13.77/oz
18.8:1 Dow:Gold ratio.
1023.5:1 Dow:Silver ratio
March 5, 2013
Dow Jones - $14,254.00
Gold - $1,575.50/oz.
Silver - $28.70/oz
9:1 Dow:Gold ratio.
496.7:1 Dow:Silver ratio