Wednesday, October 23, 2013

Velocity of money at an all-time record low!

Velocity of M2 at an all-time record low. This is screaming...the government's got to spend, spend, spend!

14 comments:

Seve141 said...

It's a shame that evidence doesn't influence the policy makers.

Actually it is more than a shame, it is an epic failure to advance the well-being of the nation.

googleheim said...

Just go ahead and shade in the present and past two years as recession

y said...

velocity of money is a bit of a weird one. What does it really even mean?

Ralph Musgrave said...

Y, The velocity of money in New York State in 1932 was a third what it had been in mid 1929. So slow velocity is a good sign of lack of consumer and business confidence or of a recession.

On the other hand, there has been a big rise in monetary base as a result of QE. And much of that money has (by definition) gone to the rich who are just sitting on it. So I’d guess that chart produced by Mike to some extent reflects the fact that stimulus has been implemented in an incompetent manner: looking after Wall Street and ignoring Main Street so to speak.

Michael Norman said...

Yes, Ralph, correct on that last point!

Dan Kervick said...

Ralph the monetary base doesn't have a lot to do with M2.

M2 is the sum of currency held by the public (which does not include bank vault cash), transaction deposits at depository institutions, savings deposits, small-denomination time deposits (those issued in amounts of less than $100,000), and retail money market mutual fund shares.

Charles DuBois said...

Yes, Dan, you are right. This ratio is meaningless. The denominator is mostly bank reserves. As we know, bank reserves have little or nothing to do with the increases in loan demand which would increase money supply growth. Or, for that matter, reserves have nothing to do with other sources of money growth either. The reserves have went up, increasing the denominator, simply because "QE" has given the banks more reserves (counted in the base) in exchange for taking their bonds (not counted in the base).

Dan Kervick said...

Charles, which ratio are you saying is meaningless?

Ralph Musgrave said...

Dan,

If I sell Treasuries to the Fed as part of their QE operation, I get a check from the Fed, which I deposit in my commercial bank. That money is Fed created money: it’s monetary base / bank reserve isn't it? So QE will have boosted M2 far as I can see.

MoveThroughIt said...

How about using M1V:

http://research.stlouisfed.org/fred2/graph/?g=nFe

Ryan Harris said...

In the ghetto we call high velocity of money living paycheck to paycheck and paychecks go faster than a Mosler MT900 as it is.
Velocity of money my arse gimme a flippin raise already and slow it down. Let my money sit in an investment or treasury account and have a vacation, do nothing productive like the rich folks money. Then let the bastards in the gilded towers on the coasts and ivory halls of academia go marvel over the money supply and economic activity and talk about money as if it were a bloody automobile race.

Charles DuBois said...

Ralph you are correct. Sorry, I
incorrectly read the graph as the
velocity of the monetary base
(GDP/monetary base) whereas I believe it is GDP/M2.
But I think my point still has some validity. QE icreases M2, as you explain, but it does not increase your financial assets, as you know. That is, your bond was a liability of the government. Your bank deposit is a liability of the bank. You just changed debtors.
So GDP to M2 would decline. But all that happened is that the composition of your savings changed - so it is an "artificial"
decline in the multiplier.
Spending is a function of assets, income, needs, wants and desire to save. That is, my understanding is spending will not be impacted by a change in the composition (but not the amount) of your financial assets. Hence, GDP/M2 declines as a result of QE. This decline appears to be an artifact of what is called money (bank accounts ) and what is not (Treasury bond savings). Thanks.



theyenguy said...

Not only is the Velocity of M2 at an all-time record low; but M2 Money Supply has been decreasing.

The US Federal Reserve finally crossed the rubicon of sound monetary policy; the result was the failure of the US Fed money printing operation is seen in M2 Money trending lower. The US Federal Reserve site shows M2 Money peaked on 10-21-2013 at 10,988, Billion, and has been trending lower: 10980, 10974, and now 10922http://research.stlouisfed.org/fred2/series/M2/

Just like fiat money, that is Aggregate Credit, AGG, and Major World Currencies, DBV, and Emerging Market Currencies, CEW, died on October 23, 2013, M2 Money died when the bond vigilantes called the Interest Rate on the US Ten Year Note, ^TNX, higher from 2.48%.

Failure of trust in the world central banks’ monetary authority is causing not only monetary deflation, seen in the US Fed’s report of M2 money supply growth turning negative, and is also causing investors to derisk out of capital intensive investment.

First, Global Growth Sectors, Timber, WOOD, and Design Build and Construct, FLM.

Second, Global Hot Money Nations: Thailand, THD, Philippines, EPHE, and Brazil EWZ

Third, Yield Bearing Sectors: Electric Utilities, XLU.
Fourth, Global Industrial Production Sectors:, Global Miners, PICK, Steel Producers, SLX, and Metal Manufacturing, XME.

Please consider that on October 23, Jesus Christ opened the Scroll of End Time Events, and released the Rider on the White Horse, who enabled the bond vigilantes to call the Interest Rate on the US Ten Year Note, ^TNX, higher from 2.48%, and to enable the currency traders to sell the World Major World Currencies, DBV, and Emerging Market Currencies, CEW, terminating the Creature Jekyll Island and birthing the Beast Regime of Revelation 13:1-4, thus pivoted the world from a policy of investment choice … consisting of credit schemes, such as, free trade agreements, financial deregulation, leveraged buyouts, nation investment, securitization of debt, dollarization, financialization of stocks and ETFs, such as corporate bonds which convert into stocks, and currency carry trade investing schemes, all of which created capital for corporations to operate and revenue for governments to operate in an environment of economic growth … to a policy of diktat … consisting of government mandates such as ObamaCare, and consisting of debt servitude schemes such as regional framework agreements, bank deposits bailins, new taxes, privatizations, capital controls, austerity measures, ECB banking supervision, EU fiscal rules enforced by a Fiscal Sovereign, and statist vitalizations where banks and other corporations are given charter to operate as public private partnerships for regional economic security, regional stability and regional sustainability in an environment of monetary deflation, economic deflation, and economic recession.

Lefeuvre Gerard said...

Ou peut on trouver la vélocité de la monnaie pour la France sous forme d'un graphique
merci ?

Where can we find the "French money velocity" as a chart
Thank's ?