Let's start with this point.
1. Imagine Sequoyah is a barber and Alberta's Child is a landscaper.
2. You have $1 in your pocket. I have $1 in my pocket. There are no other people in this world. The "money supply" in our economy is $2.
3. You charge me $1 for a haircut. I charge you $1 to cut your lawn.
4. I get my hair cut once a month. You get your lawn mowed once a month. This means you have $12 in annual sales (12 x $1) and I have $12 in annual sales. The total GDP of our economy is $24. That means the $2 in "money supply" has facilitated $24 in annual business activity.
5. Now suppose I have concerns about my finances, so I stop getting my hair cut every month. I go to you for a haircut every other month, and cut my own hair every other month. Since your income has been reduced, you respond by letting your grass grow a little longer and only paying me to mow it every other month. So now you have $6 in annual sales ($12 x 6) and I have $6 in annual sales.
6. The end result of Item #5 is that we have the same money supply ($2), but there is only $12 in business activity instead of $24. The VELOCITY of the money has slowed considerably -- because it's changing hands less frequently.
7. Now imagine what would happen if I stuck my dollar in my mattress and cut my own hair every month. And you decided to mow your own lawn. In this scenario, we have the same money supply of $2 but NO velocity of money because we aren't conducting any business with it.
A reasonable explanation of money velocity, my recollection is refreshed from when we argued for increased permitting offshore and lower royalties for very deep water. How though can there be such low money velocity for so long and still have inflation, the too many dollars chasing too few goods?
I get the deflation example but there are too few of some things and the prices continue or have continued to go up until somebodys can’t make the payments. I’ve lived that in the extreme in oilfield boom and bust cycles in places like Midland and Oklahoma City, missed the entertainment in Houston but decided to get out while I could in the last round that never came so much somehow.
None of the scene bodes well except that the ROW is in much worse shape and thus we attract their dollars or investment. So some say.
Thanks for the example!
I see right away I need to contact Sequoyah and Alberta’s Child for personal grooming and lawn maintenance.