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To: expat2

You’re right. I was talking from the perspective of the one who deposits his money in the bank or in his gold stash. From this perspective, the velocity of money is zero. Of course, if the bank use the deposited money to invest or to make loans, then the velocity ain’t zero from their perspective.


6 posted on 12/07/2012 9:57:38 AM PST by Katechon
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To: Katechon
Fine, but it is not a quantity in any individual's or business' "perspective" -- it is a macroeconomic concept, averaged for the economy as a whole.

I'm not sure it is appropriate to sweat so much about the money that the Fed is 'printing', as long as the velocity of money is so low. The private side has been pulling money out of the economy at a rapid rate (e.g., mortgages are being paid off but few new mortgage loans for new home sales, businesses de-leveraging, etc.) and the Fed is just trying to replace this money to stop us going into a deeper recession. The problem will arise when private business and consumer lending increases, and velocity goes up. Then, the Fed will have to upll that money back very smartly.

8 posted on 12/07/2012 11:25:17 AM PST by expat2
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