“Here’s an interesting bit of correlation (and causation?) for you. Have a look at the chart I formulated below showing NYSE Margin Debt and the S&P 500. The two data sets show a correlation over 85%.
Now, this is really interesting in that it melds with our work on Monetary Realism and monetary theory quite nicely. Using Werner’s concept of disaggregation of credit we can clearly formulate how credit is being used at various times to benefit from improvement in the stock market. If you’re not familiar with the concept of disaggregation of credit please see here. But, in short, it is based on the understanding that our monetary system is almost entirely built around credit and how banks issue credit to perform various functions. These functions can be both good and bad.
If you enjoy the content at iBankCoin, please follow us on Twitter
