questions about money and credit increases

Economics Economics Questions
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1

www.economagic.com displays a chart that says the currency in circulation increased by about 65 billion dollars from jan 2008 to dec 2008.

economagic also shows a chart that says m2 increased by 752 billion dollars during the same period.

subtracting 65b in currency from 752b in m2-moneys yields 687 billion of dollars other than currency??

if assume the info is true.

us gdp during the same time rose quickly for half the year and basically fell just as fast (if the economagic info is true) and ended where it began.

  1. is it the 687 billion of credit dollars that many at the mises site and lrc claim that causes malinvestments and economic ‘injustices’?

  2. does the credit expansion listed above manifiest itself in gdp in some way?

  3. 2008 gdp began at 14.2 trillion - so would a 752 billion increase of money real and credit have a malevolent effect on a 14 trillion dollar gdp economy?

for instance, 2007 gdp proceeded continually upward with i assume similar money and credit increases.

  1. would so-called austrian economists be more at ease if only the 65 billion in currency was ‘produced’ without the credit expansion…only 65 billion dollars of true money seeping into a 14 trillion dollar economy?

  2. would this be similar to how new gold/silver/commodity money would enter into an economy?

2

Several problems come to mind, without looking at the numbers in any context whatsoever:

  1. Yes

  2. Eventually, but GDP is mostly a bunk number anyways. Eventually the balance of that $750B is going to find its way in to the economy. It’s on the sidelines right now. We don’t know when, or in what sectors it is going to be used, but the effects of that injection will be - as always - to allow those with access to that new money the ability to bid higher prices than they otherwise could. Prices rise because of the new money, not because of anything fundamental in terms of production or value creation in the economy.

  3. All inflation is bad. This time though, they pulled oout all the stops. There is nothing backing any currency in the world anymore, except the shadow of faith. ANd nothing this absurd has ever been put forth. I can’t imagine a happy ending.

  4. If the net result of the 2008 FY was economic contraction, because previous boom years overbuilt and need to be corrected, then even $65B is too much. Money is the result of production, and if production is decreasing (or not increasing) then there’s no reason whatsoever to increase the amount of currency.

  5. No. Commodity money is an economic good, and like any other economic good it must be produced. It can’t be willed into existence by a banker, it is the product of prior capital accumulation (savings) and labor.