Velocity, quantization, gains from specialization and Levine chains

A popular graph

This graph seem to show we are about back to pre-crisis growth.  Uncle Milt calls this snap back.  Really, we are biologically fixed for a certain growth, when we don't have that growth, we take the one time charge off, then we re-establish a biological fixed production chain.   Underneath the covers, money velocity is back to 2001 levels.  Lower velocity implies a shorter Levine chain, implying more quantization noise, and lower growth but safer inventory levels.

Gains from specialization

The Levine channel seems to have been stable about 1985 - 1990 when the gain from specialization was about 1.1 (CPI/PPI) and 1995 with gains of 1.2 .   But note that the gains fare still dropping from 1.2, and the next stopping point is 1.1.

Somewhere around 2000, the velocity approached 85 while it was 70 during the 1985 - 1995 period.

The two stable Levine chains have the gains of 1.1 and 1.2, and velocities of 70 and 85.  In other words, the snap back looks good, but we will revert to the velocity of the 1990 period.  We are still too inflated, more deflation on the way.  We really have to spend time with the shorter chain to snug up inventories.