Hot Money, Cold Credit

Money matters – it’s a maxim of Prof. Milton Friedman that I repeat often in my columns. Since the Northern Rock bank run of 2007 – the “opening shot” of the financial crisis – the money supply, broadly measured, in the United States, Great Britain, and the Eurozone has taken a beating. Recently, in the United States, money supply growth has started to rebound, but only slightly. In the U.K. and the Eurozone, things are much worse. This is cause for concern, because the quantity of money and nominal gross domestic product are closely related.

Not surprisingly, in the U.S., growth has been anemic, at best. In the U.K., the economy has fluctuated between stagnation and recession. And, in Europe, growth has been replaced by the Eurozone’s longest recession ever. Indeed, 9 of 17 E.U. countries that use the euro are in a recession, including France, and Eurozone unemployment sits at a record 12.1%.

When it comes to measuring the money supply, we must heed the words of Sir John Hicks, a Nobelist and high priest of economic theory: There is nothing more important than a balance sheet. These sentiments were recently echoed by my Parisian friend, former Governor of the Banque de France Jacques de Larosière, in his 17 April 2013 lecture at Sciences Po.

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Kathleen M. Packard, Publisher
Ralph J. Benko, Editor

In Memoriam
Professor Jacques Rueff
(1896-1978)

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