MV = PQ Is It Really This Simple?
Guys, I first want to show you this chart we put together today. Basically it shows the moment the global central banks hijacked the financial markets, well taking down 2 major investment banks in order to do so, hell we always need a scapegoat. Anyway, econmentor.com does an excellent job of outlining this equation here:
Equation of Exchange (MV=PQ) / Quantity Theory of Money
Equation of exchange and the quantity theory of money:
This is the "monetarist school" view of the role of money in the economy.
They believe that money directly affects prices, output, real GDP and employment in the economy.
As money supply (Ms) changes, so do these macroeconomic variables.
This is in contrast to the "Keynesian" view which believes that changes in the money supply directly affect interest rates, and through it indirectly income, employment and output in the economy.
To establish their claim they propounded the identity equation called the "equation of exchange" and then established the "quantity theory of money."
The Eq. of exchange:
MV=PQ
where
M= money supply in the economy, mainly M1
V= velocity of circulation.
P=price level in the economy
Q= output produced by the economy
The velocity of circulation "v" is defined as the average number of times a dollar bill circulates in the economy per year.
Back to the chart that we did today:
This chart clearly defines the moment of the global central bank hijacking and it has brought forth a decade worth of central bank asset over reach never seen before. Many investors ask us if there is an end to this madness, to this artificial support, well we know the answer is yes, however the timing is far more obscure. We know Minsky has a clear cyclical answer and we know that global debt is rising while yields are becoming more negative.
In this upside down world, we can only estimate the level by which the insanity can rise, that is at what factor will this game ultimately fail as the wedge is further driven between the haves and have nots. That is the real question we must answer, for this type of construct doesn't benefit the many, but rather a very select few. In fact what is worse is that the more this reality becomes mainstream the worse trust in the system becomes, why? Because even those that benefit know its bullshit.
This won't stop the money printers from rape and pillage along the way, but eventually something comes along to turn the tide and it always comes out of where nobody expects it too. So we aren't necessarily watching a specific level, but rather we are measuring the instability of the societies around the globe. We feel this will provide a much better indication of when then any specific factor or ratio.
We did a weekly update video for a friend of ours and we have included the link to our econemotions.com YouTube channel where you can view the video update,
LINK TO VIDEO
We feel we are getting better at these and hope to keep them coming for your educational purposes.
Cheers