That Spending Binge Chart, Adjusted for Inflation This Time


After a series of virtual (and well deserved) coscorrones for publishing what really was a misleading post this morning, I went back and re-did that M2 expansion chart including an inflation adjustment. (Since inflation numbers only come out once a month, this one is monthly rather than weekly.)

As you can see, the picture doesn’t look quite so bad when you take inflation into account. Sure, a 14% real expansion in the money supply is nothing to sneeze at, and there’s still time to ramp it up. But we’re certainly not in the same league as in the heyday of money-creation ahead of the 2006 election – a genuinely crazy monetary binge that did much to cause the higher levels of inflation we’ve had ever since.

In fact, in real terms, monetary liquidity has expanded less quickly this year than it did ahead of the Legislative Elections in 2010 – and hell, we won that time!

Know hope…

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      • I’m inclined, though without specific evidence, to agree. Any chance this can be tracked against an index of the oil price? I don’t think there is much link this year (prices went down, then up a lot, down a lot, then up some to end the year about where it started, whiel this shows a fairly steady climb), but I wonder if it was stronger in other years. In 2006, for example, prices rose a lot through the first part of the year.

    • It comes from in-discipline… In this moment the Regimen is very inorganic. They are uncapable or unable to organize even to gift money.

      • I believe earlier this year many people, including Chavistas, thought El Comandante might not even make it to the elections because of his illness. Funny how that perception has now changed, but it might have influenced spending (or encouraged at least a few to grab the money for themselves!)

  1. F. T. Please explain: Previous/0ld Chart 2006 blue line ended at 165 non-inflation-adjusted. New Chart 2006 blue line now inflation-adjusted ends at 178–so we had deflation–can’t be right!

    • It’s probably to do with the mismatched time periods and different starting/ending points (i.e. I’m using Dec. 2006 as the final month, even though the election was Dec. 3rd.) But go ahead and re-do the chart if you’d like – I’ll run a corrected version if you like. (All the data is on the BCV website…)

    • nope – 2006 has a different base year (1984) – 2007 and on use Jan 2007 as a base.

      Like I said, I’m a tirapiedras of economics. If you can do better, please do! I’ll post it and give you credit.

      • well it really does not matter if you used different base years because you are normalizing all the series by the first point; real growth should be the same independently of what base year was used

        • But, if for 2006 the procedure was the same/base year the same/even if there was a 1-month shift, the 2006 blue line pre-inflation spending figure cannot be lower than the inflation-adjusted figure unless there was a BIG difference in the inflation for that one shifted month. In any event, inflation-adjusted figures prima-facie look O. K. for all other series, but the 2006 blue line defies explanation by not decreasing dramatically post inflation adjustment.

          • Clarifying: the blue-line end point could theoretically be higher post-inflation adjustment than pre-inflation, with a 1-month shift in the series, but, unless there was little or no inflation in 2006 (not likely), the entire blue line logically has to be lower post-inflation adjustment than pre-inflation, as it is for all other years depicted.

          • I did some of the calculations (sorry; don’t have time to do the whole chart) and growth of real liquidity over the 12-month period prior to the 2006 presidential election was 45%, not 78%. I think there may be a formula formatting problem in FT’s worksheet. (In excel A-B/C is not the same as (A-B)/C.)

  2. Perhaps you can read this in a different way (just to be devil’s advocate). But if you doubt your ability to win (fairly or not, that is another matter) you step on the M2. If you are confident you can win (or rig the result via a tight control of ‘actas’) then you don’t bother too much with it, ok you ramp it up but you don’t make it your ‘key’ re-election tool. I do not think that HCh sees M2 as his ‘key’ re-election tool. A castrated CNE trumps M2, and perhaps even ‘acta mata M2’?

  3. Could it be, that a saturation point was achieved? Maybe you can’t put more money to work in Vzla., because of not existing skilled workers (for the housing projects they are “importing” chinese, iranian(?) and belarusian(?) workers), or materials or infrastructure (transport). I have to think of a lot of projects with infinite delays, apparently from incapacity to get done (Torre Este only to name one…).

    • Good point. Public spending alone can’t push a country’s economy all by itself. Even China with all the money windfall from the State is slowing down.

    • OMG!! Could it be that the government understands there is no inflation-unemployment trade-off in the long run like predicted by Edmund Phelps and Milton Friedman in work that earned each of them a Nobel Prize in Economics???


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