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... income loop:
Looking at what constitutes M2, other than savings accounts, only the relatively wealthy can afford to park their money in time deposits, let alone money-market accounts which have rather high minimum balances (in the tens of thousands of dollars).

An important part of the income loop is the provision of short term finance for operating capital ... sales of materials or stock on terms of 60 or 90 days net, the finance of the wage bill, etc.

The decline of the M1 component of M2 seems highly likely to be tied to the decline of cash and checks in total consumer purchases compared to credit and debit cards. The reduction of the average time that money is residing as cash between withdrawal and purchase, or in the checking account between writing the check and the check being covered, would seem to imply that  money in the income flow spends a larger share of its time in the firm sector, and that would imply an increase in the M2 ex M1 component relative to the M1 component.


I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.

by BruceMcF (agila61 at netscape dot net) on Sun Oct 7th, 2007 at 07:31:36 PM EST
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