Tuesday, 1 December 2009

To what degree to the banks inflate the monetary base?

Click on the image for a full size version.

Here is something I have been pondering... is the money supply in a semi-continuous state of being at the maximum allowed by fractional reserve banking? Perhaps only becoming reduced during the hangover of an asset bubble bursting? I am still researching this question, but in the mean time here is a graph I made showing M3/M0 and M3/M1 for the US dollar from 1959. Irritatingly the US have chosen to keep M3 under wraps in recent years, I wonder why?

It looks to me that the more significant figure is the M3/M1 ratio, that would appear to correlate better with the degree of monetary madness there is in the world. The M3/currency (M0) ratio appears to not to have any remarkable value, whereas M3/M1 is clearly headed towards uncharted territory.

The graph was created using the data at the bottom of this wikipedia page.

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