The Trump agenda, cut-cut-cutting the federal government, it's like we are married to it: for richer or for poorer, in sickness and in health, for better or for worse.
Milton Friedman wanted to say a few words:
Just as higher government spending can contribute to excessive monetary growth, so lower government spending can contribute to reduced monetary growth.
And also this:
There is strong evidence that a monetary crisis involving a substantial decline in the quantity of money is a necessary and sufficient condition for a major depression.
In recent posts we have seen the quantity of money running low, problematically low relative to GDP-at-actual-prices, and problematically low relative to accumulated non-federal debt. And not long ago we saw graphs showing
- the low quantity of "base" money as a recurring problem;
- federal debt running below-trend, contributing to the financial crisis and 2009 recession;
- and the effects of changes in the M1-to-GDP ratio.
Milton Friedman wants you to be cautious and careful, Donald. So do I.
Ah, and something I didn't notice until just now:
- When non-federal debt went below-trend in the 1990s, the economy improved.
- When the federal debt went below-trend, 2004-2008, the economy tanked.
Coincidence? Sure, Donald. Keep thinking that, Mister I-don't-want-to-be-Herbert-Hoover.
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