Re: [OPE-L] The Financialization of Capitalism (2)

From: Allin Cottrell (cottrell@WFU.EDU)
Date: Wed May 16 2007 - 00:17:16 EDT

On Tue, 15 May 2007, Rakesh Bhandari wrote:

>  I am wondering whether there is an alternative explanation for the
> mounting stock of surplus in the form of liquid money capital...

How would you define that stock?  I'm not sure what's the best
measure, but if the emphasis is on "liquid" one might look at the
"MZM" (Money Zero Maturity) figures produced by the St Louis
Federal Reserve Bank (M2 less small-denomination time deposits
plus institutional money funds).

MZM is currently about 52% of GNP.  This is about the same as in
1968.  It has fallen from a recent peak of about 57%.  Over the
years since the '60s it fell fairly steadily till 1981, then rose
more erratically between 1982 and 2003, then turned down again.
There may be a story to tell here, but it would appear to be the
fairly standard one, of how money demand responds to interest
rates (high interest rate = greater opportunity cost of holding
liquid balances -> less demand to hold same).  From this point of
view the high peak of MZM holdings around 2003 would represent a
response to exceptionally low interest rates in the US.


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