What more is there to say?
Earn more money, when you have more sex, study says (seriously!)
What more is there to say?
Jeff Miller at “A Dash of Insight” posted this, and I need to include quite a lot of his original article for my commentary to make sense. http://oldprof.typepad.com/a_dash_of_insight/2013/08/great-investors-know-how-to-interpret-data.html
So it seems to me, in this post, that the author debunking the “M2 is increasing really fast and causing inflation” myth has left out some pertinent facts, or maybe they are just not directly stated.
1. Nominal GDP includes inflation. So if there is inflation, then that inflation will be included in the GDP growth. And if M2 is growing at the same time, then how can you know if M2 growth is causing inflation, which is then reflected in GDP growth, or if M2 is growing because GDP is growing, and it is a necessary side effect? I think this can be un-confounded, but it is not mentioned in the article at all.
2. The graph starting in 1960 makes it really hard to evaluate if there is something different going on in, say, the last 5 years. There are a lot of ways you could analyze and present the data to make the case the author is presenting, but this graph is not it. In fact, if I were trying to make the case he is making in a misleading fashion, this is the graph I would use.
3. Velocity of money is not mentioned at all.
From his post:
See what you make of this chart.
The author correctly uses a log scale so that we can interpret growth in percentage terms. This is much, much better than many pundits who deceive you by making normal growth look like a hockey stick.
The author interprets the chart as follows:
“My analysis shows we are experiencing rapid inflation right now; but the way the government calculates its numbers masks the true story of inflation.
To understand what’s at stake, we need to go back to Economics 101.
What we are now seeing in the U.S. economy is monetary inflation. This happens when the money supply increases. The increase in money supply eventually causes currency devaluation, which results in higher prices for goods and services as buying power declines—this is classic inflation. (Throughout history, monetary inflation has eventually become price inflation.)
Consider the chart of the M2 Money Supply reproduced below. M2 is considered to be a broader measure of the money supply—it includes savings accounts, deposits, and non-institutional money market funds, in addition to the currency already in circulation.”
The entire article is aimed at scaring retirement investors, and it was given extra reach through republication.
If you really took Econ 101 you would probably understand that a larger economy requires a larger money supply. Try improving the chart in two ways:
Here is what you would see:
There is nothing unusual about current M2 growth. It is a normal rate and it is also in line with GDP. If anything, the growth in the money supply lagged a bit in the post-recession period, the reason for the Fed’s QE programs.
The entire post is much ado about nothing. The author is selling a scary story. I know not whether it is gooseschmitz or wolfschmitz. In either case, investors should not be buying this tall tale.”
There is just too much stuff out there about this guy and the documents and the international intrigue and so on, and it is impossible to know what is true and what is false. But it is all very interesting.
This report is about Snowden using the login IDs and passwords of top NSA officials to get more access, and to copy files without any record being kept. So they don’t even know what all he has. Wow.
I think this post could have had a better title, as it really is about the value of recognizing limitations, rather than finding some value in actual ignorance. The ideas presented here are a direct corollary of “Check Your Assumptions.”
That is, Barry Ritholtz explains how it is vital to understand what it is that you know, so that you can determine what it is that you don’t know. For me, a large part of this is digging even deeper to determine what are the assumptions behind the things that I “know”.
He also does a nice job of describing how clients or investors or the general public mostly do not think this through. As a result, they have a vague idea that they don’t know much about something, and so when someone says, I have JUST THE THING for that, it is very comforting, and they are SOLD (generally sold a load of crap).