Money Speed, Inflation, and Bonds—The Unseen Connection
April 3, 2025
When the velocity of money (VM) increases, inflationary forces emerge from hiding and become more visible. It’s important not to confuse inflation with inflationary forces. Inflation refers to the increase in the money supply—essentially printing money out of thin air—which has happened since the Gold Standard ended. Inflationary forces, manifest as rising prices, are merely symptoms of the underlying disease.
Since the Great Recession, prices have been largely kept in check. There were isolated jumps, but nothing like what we see today, mainly because VM was controlled. How? The money created during that period was mostly funnelled to the banks, with very little reaching the average person. As a result, VM continued to decline.
After COVID, things changed. The Fed actively sought some inflation, as Jerome Powell even stated that some inflation is not necessarily bad. COVID provided the perfect excuse to inject money into the economy, giving small businesses and everyday people financial support.
Money was distributed during COVID, but it wasn’t just printed—it was directly put into people’s hands to accelerate the velocity of money (VM). Large players tend to use money differently when money is printed, so VM has remained flat for decades. Once the COVID crisis subsided, the Government had to find other innovative ways to get money into the hands of the public. This led to policies that allowed for an increase in illegal immigration, where individuals were provided with money and housing, further boosting VM.
If Trump enacts many of his policies, including reducing the size of the Government and starting mass deportations, it will impact VM potentially in a negative manner. A decrease in VM will usher in deflationary forces. It’s important to understand that the deflationary troops are not the same as deflation. VM has declined for decades, so it’s likely to revert to the mean. The resistance points—like the brick-coloured red line (first line of resistance) and the purple downtrend (a solid resistance point)—represent key turning points. Failure to break past these levels could open the door to deflationary pressures.
Now, let’s see if Trump sticks to his policies. Even if he doesn’t do much but halt the rate of hiring new government workers, prevent Congress from giving itself massive pay raises, and stop the flow of illegal immigrants, that alone would put downward pressure on VM. If he implements his policies more aggressively, it would add even more pressure on VM.
Lower VM is generally favourable for bonds.
The Alchemy of Money – Mass Psychology, Chemistry, and the Velocity of Money
The velocity of money (VM) is more than just an economic metric—it’s a psychological and chemical reaction at scale. When people believe they have more wealth, they spend faster, accelerating VM. This is a psychological chain reaction, much like an unstable chemical compound reaching a critical threshold before exploding.
Government stimulus, immigration policies, and debt forgiveness are all catalysts designed to manipulate mass sentiment and increase spending, just as chemists carefully introduce reactants to a volatile mix. But here’s the twist: what rises too quickly often crashes just as hard. If VM reverses due to policy shifts, deflationary forces will take hold, much like a chemical reaction suddenly shifting to an endothermic state, sucking energy (money) out of the system.
This isn’t just economics—it’s alchemy at the highest level, where perception dictates financial reality, and those who master the formula hold the keys to the future.
Conclusion
As we’ve always said, the Government doesn’t care about its citizens’ welfare. The influx of illegal immigrants was just a move in the larger, dirty chess game. This was done for a single reason: to serve as scapegoats. They justified pushing more money into circulation, thus increasing the velocity of money (VM) by offering housing, food, transportation, and cash.
Besides illegal immigration, the Government has spent the past four years looking for ways to put money into the hands of the populace. One example of this is student loan forgiveness. Suddenly, those who borrowed large sums felt better off and likely started spending more than they could afford, much like before. The “average Joes” spend freely, while the “kings” typically save.
Another way the Government has pushed money into the hands of the populace is by expanding government hiring, and the Biden administration has dramatically expanded the size of Government. Many of the inflation reduction acts had one purpose in mind: to hire more people. This has pushed VM higher, and looking at the chart above, it’s clear that on a percentage basis, it has risen higher than any point after 1997.
All the inflationary pressures since the COVID crash can be traced back to VM—there’s data to confirm it. China has noticed this trend as well, and since they’re struggling with deflation, they’ve borrowed a page from the U.S. by raising the salaries of all government workers, the first such increase in many years. This move will put a lot more money into the hands of the populace and small businesses. To increase VM, you need to give money to those who need it, not to large companies and billionaires who don’t need it.
Bond prices tend to fall when VM rises. As seen in the chart, M2 VM peaked in 1997, and there’s a pattern: bond prices rise, and interest rates drop when VM is falling, and vice versa. The current activity in bond markets appears to be an anomaly. If historical patterns hold, deflationary forces could emerge, which would be favourable for bonds.
Breaking Patterns, Building Understanding
