Market Curiosity: Exploring Markets And Systems

January 24, 2009

US Financial System Losing Traction?

Filed under: Just Watching — Tags: , — Jeff Fitzmyers @ 3:25 pm

The Federal Reserve’s (neither “federal” nor “reserve” (1), (2), (3)) M1 multiplier is the ratio of M1 to the St. Louis Adjusted Monetary Base. It is used as a rough proxy for Federal Reserve Note velocity. Apparently being below 1.0 means that each “dollar” put into the system only yields 90 cents of effect.

If the M1 Money Multiplier gets near zero, adding near infinite amounts of money would produce minimal desired effect. By then people re-understand that to much debt has unpleasant consequences. Thanks to Karl Denninger who brought this too my attention

Notice the M1 Money Multiplier has been sloping down for quite a while?

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