This graph represents the ratio between money printed and the effective change in the money supply over time. What a precipitous drop! Holy hell! M1 falling below 1 is a weird place to be.
This drop is due to banks hording cash reserves. It also is more evidence that the strength of monetary policy to deal with this (rec/depr)-ession is too small to be effective. The fed cannot even print money in a way that will increase the money supply by the amount of money they are printing. Fiscal stimulus looks like the only way to go. Naturally I pulled this graph off of Paul Krugman GREG MANKIW’S BLOG???? Um… Greg? What’s going on over there buddy?
More on Mankiw later…
