23 June 2012
Has the Great Contraction Begun?
This month has brought bad news from all over. And many must be wondering whether the next Great Contraction has begun. Below is a very interesting and very simple graph. It adds M1 (seasonally adjusted) to sweeps and subtracts Industrial and Commercial Loans at all Commercial Banks (seasonally adjusted).
It captures the recession of 2007-2009 very well and shows that the contraction began much earlier. One can also argue that the recession was caused by the very large expansion earlier.
Another interesting feature was that it shows the period from about 1994 to 1999 was indeed a Great Moderation.
Incidentally, the latest period shows a contraction.