Posted on 01/14/2016 6:24:54 PM PST by ChessExpert
The velocity of money has declined to 1.49, the lowest level ever recorded. From 1960 to 1990, the velocity of money average between 1.7 and 1.9. It reached a peak of approximately 2.2 in 1997 and has, for the most part, plummeted since then.
(Excerpt) Read more at americanthinker.com ...
I thought it was 2.5 parsec’s per minute or the velocity of a herring gull after a french fry.
Given the increase in the supply of money from the Fed is it really a surprise that the velocity has dropped?
3, 2, 1.....
I would have expected an increase with people being afraid of inflation. Hyperinflation isn't merely an increase in the money supply, it is an increase in velocity as people want to get rid of increasingly worthless paper to get real items. In Weimar Germany workers would be paid twice a day and often wives would pick up their husbands' pay at lunch to buy groceries before prices went up more.
I guess the fear of debt outweighed the fear of inflation. Too bad the Nine Trillion Dollar Man didn't share that fear.
The following analogy has helped me.
One analogy to explain the looming inflation might be to consider a flood control dam. The water that builds up behind it during the winter and spring could be considered QE1, QE2, QE3, etc. The face of the dam would be the current moribund economic activity indicating a very low velocity of money as exampled by such questions as “Why do I want to borrow if no one wants to buy? or “Why do I want to buy when I don’t have a job?†Now stagflation happens when the reservoir gets so full with QE’s that some water just has to go over the top, even though economic activity remains anemic.
But when the economy picks up money begins to circulate actively. Now the increased velocity of money because of our fractional lending system exponentially multiplies the money created by the QE’s. The increased economic activity fueled by huge quantities of money becomes erratic, excessive and unsustainable with price inflation affecting all sectors and providing an appearance of prosperity. It would be like water by its inordinate pressure intruding into the face of the earthen dam agitating the rock and soil causing the face swell and heighten as water intrudes ever further into the dam face. The intrusive water (money) reduces the ability to withstand the increased pressure which shatters the face of the dam. Just as a wall of water scours out the stream bed and washes all before it, inflation now rages through the economy and destroys people’s financial asset values and their purchasing power.
Since most of the new dough apparently goes to Wall Street, not Main Street and the quantities are so YUGE, Wall Street would be likely to dominate the metrics feeding into the Velocity calculation.
The fake money went to banks, which were conveniently prevented from lending it by strict banking regs enacted by the regime.
Knowing that they would lose in 2016-- how could they not, having enraged more than half the populace-- they have an exit strategy.
They'll pull the plug on the dam along about September 1st, and by January the place will be going to hell in a hand basket, which they'll blame on the prospect on a new 'prosperity killing' president.
These totalitarian progressives are all-in, they know this is their only chance, and they intended to win at all cost.
Oh, I like that visual.
No, No No . The Millennium Falcon did the Kessel Run in 12 parsecs!
Bad times in Rexburg.......
Rats, I figured I was off by two gwarp factors.
Someone (Mises?) wrote about the changing psychology that went with hyperinflation in Austria and Germany. The woman of the house went from collecting coupons and waiting on deals, to buying as fast as she could. Changing attitudes, a run on the bank is another example, can only explain so much. Underlying fundamentals, like excess money creation, lead to changing psychology.
In our case, we have had erosion of the rule of law, the increased costs and risks of Obamacare, and the prospect of future tax increases and punitive laws.
More arbitrary power in Washington, has led to more crony capitalism. Consumer sovereignty has been reduced as the King and his courtiers have assumed more power. It’s not a good investment climate, unless you see a very good opportunity, or are among the lucky few with political connections.
As for the general populace, they have not seen a good economy for many years. With reduced real income, it’s not a good time to spend or invest.
I think the economy is too depressed for inflation.
I’m not denying the possibility of hyperinflation. We mostly focus on the demand side, but a collapse of supply, say from a wave of bankruptcies, could lead to price increases too. Either way, the hyperinflation mentality might start up.
Meaning...?
Hint: The first line of the article should explain WHY this is important to the average man in the street, i.e., what the consequences are for the stock market, inflation, unemployment, or the price of tea in China.
Regards,
Does this have anything to do with unladen European swallows?
Classic debt deflation.
Even if the Fed literally dropped hundred dollar bills from the sky, most people would take it home and put it under the mattress.
And nothing will cause people to increase their debt load.
I understand what you are describing in terms of inflation fears, but those with existing debt at fixed rates are less concerned about that. My mortgage can’t change very much, and in fact inflation would be nice (if wages keep up) because the house and car just became that much “cheaper”.
Those not tied to mortgages can just move further away from high-cost areas when the prices go up; some people commute from the Poconos and northwestern NJ to NYC for just this reason. A horrible commute/quality of life for the breadwinner, but they bring an NYC salary back to the sticks and live in castles (without their children being exposed to NYC).
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