What is the Velocity of Money

velocity of money

Velocity of Money chart

The above chart indicates that without constant money infusions, there is no long-term economy. A healthy economy has an upward-trending VM. The precipitous decline started after the Fed’s massive intervention in 2009. Since then, the trend has been negative; believe it or not, this is one of the best measures of real inflation (in a world that does not operate on “hard” money principles). A rising VM is usually associated with higher prices, but in this case, higher prices are generally warranted as a rising VM also indicates that the economy is improving.

The velocity of Money from Feb 2009

Velocity of Money 2009 chart

If you look at the above chart, the economy has been sick since 2009, indicating that no matter what the Fed states, it will continue to juice the economy with money. They will intervene here and there to create the illusion that they are doing the right thing. One can also then argue that almost every inflationary move since 2009 has been artificially created, as there has been no uptick in the VM.

The velocity of Money 1970 to 1982

Velocity of Money 1970 - 1982 chart

Now, look at the velocity of money during the inflationary period that started in the 70s and ended in the 80s. VM was rising. Yet since the advent of the internet (when it went mainstream roughly in the mid’ 90s), one could argue that inflation based on the VM formula has been declining. One could also say that all the inflationary events had a specific trigger behind them, for example, limiting the supply of critical goods, disrupting supply chains, and using psyops to create the illusion that you need to buy now or lose big tomorrow.

The Tulip mania occurred when hard money principles were quite strong. One could argue that if one knows how to use MP effectively, one could lay the groundwork to create inflationary forces in any market segment.

This is the danger of having large amounts of money; you can manipulate the trend by artificially using these massive amounts of money to create or destroy demand.

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