The Velocity of Money: How It Shapes the Economy
June 7, 2025
The central premise of the Work is that man is a machine that functions like one. Reacts like one. Until he wakes up, that’s the real idea—not self-remembering in the abstract, but actual self-awareness. Not some mystical act, but the brutal, tactical effort of catching yourself in motion, recognising the program you’re running, and breaking it.
So let’s apply this to inflation and the velocity of money.
If you were truly self-aware—not just parroting headlines or relying on “Fed-speak”—you’d see the disconnect. You’d know how the financial press and many so-called experts constantly distort reality by pretending these forces act independently. As if velocity and inflation aren’t tightly coupled. As if the machine isn’t functioning exactly as designed.
Velocity of money isn’t some academic metric to be debated on CNBC panels. It’s the lifeblood of inflation. When money changes hands quickly, prices rise. Period. It’s not about rates, not about labour markets. It’s about flow—speed—and how fast the herd is told to spend or hoard.
Yet when velocity plummeted after 2008, we were told inflation would roar. It didn’t. When velocity remained flat during unprecedented money printing, we were told hyperinflation was imminent. Still didn’t happen. Why? Because the machine was frozen. No self-awareness, no real action—just programmed responses to fear.
Today, the press pushes the idea that inflation is cooling. The Fed plays along. But zoom out. Velocity is starting to stir. Quietly. If that trend accelerates, you’ll see inflation surge again—not because the Fed is “behind the curve,” but because money is finally moving through the system at scale. The machine wakes up, and the game changes.
Most investors miss this entirely. They’re too busy “remembering” old narratives. CPI, rate hikes, and oil prices. But if you’re awake, you don’t need to remember—you see. The connection is clean, mechanical. No need to spiritualize it. Just track it. Velocity up? Inflation risk is rising. Period.
If you’re still waiting for the headlines to permit you to act, you’re still asleep at the wheel. Still dreaming you’re making choices when you’re just following the script. The Gurdjieff reference isn’t a detour—it’s a diagnostic. Most investors run on loops. Patterns. Media-induced hypnosis.
Break the loop. Observe the machine. And then act—not like a machine, but as someone who’s finally stepped outside of it.
The Velocity of Money: Unleashing Inflationary Forces
When the velocity of money (VM) increases, it exposes inflationary forces that were previously dormant. However, many mistake these forces for inflation itself. Inflation, in its true sense, is the expansion of the money supply—what we call “printing money out of thin air.” This has been a constant since the abandonment of the gold standard. The symptoms of this disease manifest as price increases, but the underlying cause is the flood of liquidity in the system.
Since the Great Recession, prices remained relatively stable because VM was kept in check. How? The newly created money was funnelled primarily into banks and financial institutions, not into the hands of everyday consumers. As a result, VM continued its long-term decline.
That changed after COVID. The Federal Reserve, openly advocating for “some inflation,” injected liquidity directly into the hands of the public through stimulus checks, enhanced unemployment benefits, and other direct payments. This jump-started the velocity of money, setting off inflationary forces that had remained subdued for over a decade.
The Money Supply: M1, M2, and the Inflationary Tipping Point
The relationship between M1 and M2 offers key insights into economic shifts. When M2 (a broader measure of money supply) increases faster than M1 (the most liquid assets like cash and checking deposits), it signals a heightened inflation risk. Historically, VM has been on a downward trajectory since 1997, making a reversal a significant event. M1 VM peaked in 2007, only to follow M2 in its long-term decline.
Despite the vast amounts of money in circulation, it has primarily influenced short-term trends rather than altering long-term economic trajectories. If VM does rise, history suggests inflation will spike—but whether that pattern holds in today’s financial landscape remains the trillion-dollar question.
The Immigration Factor: A Hidden Catalyst for Velocity
A crucial yet overlooked factor in the post-COVID economic landscape is the role of illegal immigration. Unlike traditional monetary injections, which primarily benefited financial institutions, the post-COVID era saw direct cash injections into the hands of consumers. Once stimulus programs ended, policymakers needed a new mechanism to sustain consumer spending. The surge in illegal immigration provided just that.
Housing, food, transportation, and direct financial aid given to undocumented immigrants effectively functioned as another round of stimulus, increasing VM and keeping inflationary forces alive. Historically, governments prioritize economic stability over social welfare, and this was no different—an economically strategic manoeuvre disguised as a humanitarian effort.
The Great Jobs Myth: A Data Manipulation Game
The Biden administration has widely praised the U.S. job market, but a closer look reveals significant distortions. The Bureau of Labor Statistics (BLS) recently admitted that nonfarm payrolls were overestimated by 1.2 million jobs—a staggering revision that has been adjusted multiple times.
According to the Heritage Foundation:
“It’s important to remember that this benchmark is on top of the existing downward revisions to the monthly jobs reports. Comparing the initial estimates to the latest data shows that nonfarm payrolls were grossly overestimated by almost 1.2 million for a 12-month period. That’s more than a third of the alleged job growth during that time.”
This casts doubt on the labour market’s true strength and raises questions about the sustainability of consumer spending in an environment of elevated inflation.
Bonds at a Crossroads: Rethinking the Velocity Enigma
The dance between bond prices and money velocity (VM) has always been described as if choreographed by invisible hands: when VM rises, bonds typically falter; when VM retreats, bonds find their footing. Yet, today’s market moves with a rhythm that feels unfamiliar, a syncopation that defies the inherited wisdom of past cycles.
The prevailing narrative holds that, should VM reach its crest, bonds will rally as they have through decades of deflationary echoes. But this time, the script has changed. For the downtrend in VM to truly reverse—to break the gravitational pull of the past—would require not just subtle policy nudges, but a flood of liquidity reaching everyday hands, not just institutional vaults. The old pattern of banks absorbing cash and seeking shelter in treasuries has been disrupted; the recent era saw policies that bypassed tradition, placing purchasing power directly in the public’s grasp.
Broken Patterns and the New Disorder
The billion-dollar question is not whether history will repeat, but whether the tapestry of economic cause and effect has been fundamentally rewoven. The bond market’s current anomaly whispers of a deeper shift: are we witnessing a momentary aberration, or the dawn of a new order where disorder is itself the only constant?
It is tempting to map the old cycle onto the present, to wait for VM to crest and for bonds to respond as they always have. But every cycle finds its rhyme only until it doesn’t. The present demands not passive expectation but active interrogation: is the market still playing by the old rules, or have the rules themselves become fluid?
The Threshold of Inflation and Deflation
As the first major resistance—marked by the brick-red trendline—draws near, the market stands at a threshold. If VM stalls, the gravitational pull of deflation could assert itself with renewed force. Yet, it is essential to distinguish between the presence of deflation and the mere absence of inflation. Since the gold anchor was lifted, true inflation—relentless expansion of the money supply—has rarely paused for breath.
The core dilemma is this: will an uptick in VM sustain the recent inflationary surge, or will the weight of deflation press down once again? Global currents complicate the picture—while one major economy flirts with deflation, barriers and buffers insulate others, distorting the natural flow.
The Paradox of Intervention
Historically, inflationary spikes driven by VM were quickly followed by deflation, but such cycles depended on the mechanics of money distribution. To counteract deflation now, more than mere policy gestures are required; true change demands direct infusion of capital into the consumer’s pocket, not just the banking system’s reserves.
Upstream Thinking: Beyond the Binary
The true vector for understanding this market is to challenge the premise that historical relationships will rescue us from uncertainty. The market’s old logic—VM up, bonds down; VM down, bonds up—may now be a mirage. Instead, the only certainty is change and the wisdom to observe without clinging to yesterday’s maps.
Disorder may no longer be the outlier, but the baseline. The prudent mind neither fears nor clings to cycles, but seeks clarity at the crossroads—watching for the subtle shift, the unheralded inflection, and the silent signals that precede every genuine paradigm shift.
In this new landscape, the survivor is not the one who simply recalls the past, but the one who adapts to the ever-changing present without illusion or nostalgia.
