Adaptive banking in the fall of 2008

Just for grins, lets ask ourselves what bankers would have done in the Fall of 2008 it they knew that money velocity would stabilize at 80.  Mergers and acquisitions would be orderly, investors would have known the Levine chain was dropping in rank,they would have looked at the stable period from 2000 to 2005 and planned a soft landing at a velocity of 80-85.

The Levine rank, being one less than before implies greater quantization noise and reserve requirements would have risen. The greater the Levine rank, the more accurate is the banking channel and the greater the multiplier.

If the Fed believed in quantum economics, it would have pulled the plug earlier, mid 2007, a year earlier.   The Fed would have concluded that we couldn't maintain stability at the next Levine rank, and pulled us back to the old velocity of 85.   Someday we will get to a velocity of 100,and stay there; but this time around it was not meant to be..

Look at the chart.  This economy supports stable velocities of 70 and 85, we don't quite have the efficiency to maintain a 100.  Knowledge of the stable points in the economy is as valuable as, well, gold.