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