While it's important for the Federal Reserve to increase money supply during a recession to give the spending public more money for purchases, it's also important for the pace of purchases to increase, indicating more and more people are conducting purchases at a faster pace. This is called monetary velocity, and it's a very important statistic. Although not a perfect predictor, there is a strong relationship between the percentage change from last year in various monetary velocity indicators and GDP growth (this is something
I researched a few months ago).
Consider these charts:
All of the above charts show that the pace of YOY percentage change in monetary velocity has dropped and has taken GDP growth with it.
In short, the pace of money moving through the economy is decreasing, indicating a slowing down of overall economic activity.
3 comments:
Any idea how much of this decrease in MV can be attributed to the stimulus funds running dry? Or is that not a significant figure in the equation?
Wouldn't the decrease in MV give lie to the claim that any of the QEs were actually helping the real economy. If any of that money were moving off the banks balance sheets into the real economy, one would have thought we would be seeing the effects by now.
VV, the thought the QE's were going to do anything much to the larger economy was a freshwater fantasy. Quite simply, they were a part of extend and pretend while the banks were desperately healing the gaping holes in their balance sheets.
Mainstreet stimulus was pathetic, and has been pointed out on CR, the stimulus is making more cuts on the state and local levels as reduced economic activity brings in lower revenues, and federal support ends.
Extend and pretend, it has all been band aids on the wounds, while the politicians play with dynamite.
Now we see if they really are stupid enough to send us into another financial freefall.
The real question is whether the Dems, including Obama are willing to send us into freefall to break the power of the far right.
If they don't attempt it we get slow death through austerity and shrinkage of the economy, and if they attempt to curb the far right through allowing the deficit cieling default, they face immediate consequences in the markets. Dire consequences, admittedly, but ones that may be coming anyway.
In other words, choose your doom.
Might as well make some political capital off of the coming disasters.
Someday this war's gonna end...but it sure feels like forever, doesn't it?
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