David Henderson, writing for the Cato Institute, says that Greenspan ran a “tight” monetary policy. So of course he can’t be blamed. Robert Murphy has already responded to this claim in a wonderful article.
Some additional thoughts.
First:
Second:
But Henderson says that these are not relevant data. We should instead look at year-on-year change. “Since 2001, the annual year-to-year growth rate of MZM fell from over 20 percent to nearly 0 percent by 2006. During that same time, M2 growth fell from over 10 percent to around 2 percent and M1 growth fell from over 10 percent to negative rates.”
Note that he doesn’t provide the charts. It turns out that leaping from 2001 to 2006 masks lots of things in between, namely falling from 20% a 10% average rate of growth. MZM stopped growing briefly and then boomed again:
First raw numbers:
Now percent change (and note that a declining pace of increase is not the same as a decrease):
Now M2 raw numbers:
And now percent change:
One final chart shows that Henderson’s data showing “tight” growth is actually loose by historical standards. You have to return to the 1980s to find rates of growth change that compare:
Let us look at two more. The adjusted monetary base, which is completely controlled by the Fed:
It is also intriguing to look at Bank Credit of All Commercial Banks, which shows trends that show explosive lending thanks to the low Fed Funds rate, a -no-holds-barred approach that was a direct response to Greenspan’s free-for-all policies.
Let us finally look at a more accurate chart of money supply, the TMS, which counts only immediately available money (M1, Total Checkable Deposits, Savings Deposits, U.S. Government Demand Deposits and Note Balances, Demand Deposits Due to Foreign Commercial Banks, and Demand Deposits Due to Foreign Official Institutions).
So we can see that Henderson picked only the data most favorable to his position, and even that is not very favorable, unless you think that 12% and 8% growth is tight. Lest you think that this is an accident, have a look again at the Federal Funds rate.
