Chapter 4 - The Greek Money Supply Destroyed.

Graph of Loans for Greece. Creative Commons Attribute - Andy Chalkley. www.andychalkley.com.au

Greece had a severe fall in the Money Supply due to a cutback in bank lending. The banks continued to collect repayments whilst failing to issue fresh credit. The result was a drastic fall in the Money Supply.

Graph of Money Supply for Greece. Creative Commons Attribute - Andy Chalkley. www.andychalkley.com.au

This caused the Circulating Money component of the Money Supply to fall 27%.

A graph of Circulating Money for Greece. Graph by Andy Chalkley. Creative Commons Attribute Data: Bank of Greece

Here is the same graph of the devastated Money Supply showing the fall in the small portion of the money supply that actually circulates. The grey section is hoarded.

A graph of Circulating Money and Hoarded Money for Greece. Graph by Andy Chalkley. Creative Commons Attribute Data: Bank of Greece

This graph shows the wounded GDP all caused by the bank’s failure to issue sufficient credit. Our whole economy depends on the rate at which banks create credit. Each time they cut back on lending, the economy takes a nose dive. Unfortunately, they rarely maintain steady lending habits.

A graph of GDP for Greece. Graph by Andy Chalkley. Creative Commons Attribute Data: Bank of Greece
A graph of Tax Revenue for Greece. Graph by Andy Chalkley. Creative Commons Attribute Data: Bank of Greece
A graph of Unemployment for Greece. Graph by Andy Chalkley. Creative Commons Attribute Data: Bank of Greece

In Greece, the Money Supply has fallen. The damaging part was the fall in the Circulating Money (light blue). The Hoarded Money takes no part in the economy. It is the fall in Circulating Money that causes the damage to the economy.

The next graph shows the Circulating Money with an expected annual expansion of five percent.

A graph of Circulating Money for Greece. Graph by Andy Chalkley. Creative Commons Attribute Data: Bank of Greece

This nest graph is all about rates of change. You can see that every time there is a fall in Circulating Money, there is a corresponding but larger rise in unemployment. This is not a fuzzy scatter graph. This is a direct correlation. Unemployment is light blue. The change in Circuiting Money is dark blue.

A graph comparing the change in Circulating Money and Unemployment for Greece. Graph by Andy Chalkley. Creative Commons Attribute Data: Bank of Greece

This next graph is a little more complex. A fall in bank lending causes a fall in the Money Supply which causes a fall in the Circulating Money which causes a fall in the Tax Revenue, whilst the government gets the blame for not balancing the budget. The government won’t be able to balance the budget because the businesses are not paying tax because they are going broke for lack of available credit to keep the Circulating Money topped up. The order is this:

A fall in bank lending causes a fall in the Money Supply which causes a fall in the Circulating Money which causes a fall in the Tax Revenue. Graph by Andy Chalkley. Creative Commons Attribute Data: Bank of Greece and OECDstat
A fall in bank lending causes a fall in the Money Supply which causes a fall in the Money Supply which causes a fall in the GDP which causes a fall in the Tax Revenue. Graph by Andy Chalkley. Creative Commons Attribute Data: Bank of Greece and OECDstat

In the above graph, the external influence is the rate of lending by the private banks. Lending falls and the other items fall in sympathy. By my calculations, Tax Revenue fell by €11.5billion, whilst Circulating Money fell by €5billion. This is quite remarkable. If the government could boost the Circulating Money by one billion it might harvest up to two billion in increased revenue. The figures are telling us that a boost in the volume of money that is actually circulating by €5billion would raise the Tax Revenue fell by €11billion. If I magnify the vertical axis, I can show you the relationship between Circulating Money and Tax Revenue.

Circulating Money falls by 5 billion which leads to the Tax Revenue falling by 11.5 billion. The fall in the Tax Revenue exceeds the fall in the Circulating Money. Graph by Andy Chalkley. Creative Commons Attribute Data: Bank of Greece and OECDstat