The Dwindling Velocity of Money
there is slowdown in what economists call the "velocity of money"
- Most people have never heard this term
- it's simply the ratio of nominal GDP to the nominal money supply Or
- it's just a measurement of how fast money moves through the economy.
Here's how it works:
- Let's say I use a $5 to buy a hot dog.
- And the hot dog vendor takes this $5 bill to the bakery to buy more buns.
- And the baker then takes this $5 to buy coffee beans.
- In this example, this $5 bill I spent, within a few hours, had a velocity of 3
- it went to $15 worth of goods: the hot dog + the buns + the coffee beans.
- but, if I was poor man on a budget and never spent it, than my $5 has zero velocity.
- or, if I never get the $5 in the first place, because I am out of work, the money is not going anywhere.
Today, the velocity of money has plummeted
- This chart clearly reveals that money velocity has fallen off a cliff since the late '90s.
- The velocity of money has never been this low ... EVER!
- Money just isn't moving.
- This is a reflection that our economy is stagnant.
- Every time this $5 of mine is spent, Uncle Sam takes his share in taxes - roughly 6%.
- Those taxes don't get paid, if money is sitting in bank vaults.
- And the hot-dog vendor can't buy more buns, and the baker can't buy a cup of coffee.
- It's an economic traffic jam
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James Dale Davidson, "An Unstoppable Economic Collapse"
http://pro.strategicinvestment.com/NDPCOL5/ENDPR761