Velocity of Money

[Zander]

Money velocity- the rate at which money changes hands- tends to rise when the economy is expanding and fall when it is contracting. Money velocity peaked in 1997 and has been falling ever since. It is setting record lows quarter after quarter since Q3-2010

Sliding velocity is the primary reason the Fed is inflating. They believe that inflation will force velocity back up. So far it hasn't been working. It's actually falling faster than at any other time in US History. The fall is occuring amidst the Fed's most aggressive monetary policy ever.

Definition of crazy? Doing the same thing and expecting a different result.....

 

[HelenaHandbag]

So, it is really true that you cannot push a string?

Who would have figured?

 

[Zander]

The Fed is on track to accumulate $4 trillion in government IOU's in 6 yrs. What could go wrong?

 

[HelenaHandbag]

What is that velocity worth on Main Street?

 

[Zander]

What is that velocity worth on Main Street?

Nada!

When social mood turns negative, velocity will fall even further, credit will shrink, stocks will fall, and the economy will contract.

 

[Zander]

The amazing thing is how commodity prices have fallen despite the Feds best efforts to inflate. Stock prices have been the only beneficiary..... But there's no bubble.


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[oldfart]

As I've noted before, this kind of reasoning is unnecessary and confusing. The monetary identity MV=PY where M is the money supply, V the velocity of money, P the general price level, and Y the total output is a definition. If you have a theory to account for any three, the fourth is fully determined. Since M, P, and Y have robust theories to explain them, a "theory of the velocity of money" overdetermines the system (i.e. is gibberish).

If you want a theory of the velocity of money, which other variable do you want to drop, money supply, inflation, or output?

 

[boedicca]

What is that velocity worth on Main Street?

Nada!

When social mood turns negative, velocity will fall even further, credit will shrink, stocks will fall, and the economy will contract.

When the government sucks up a larger and larger share of the economy, of course velocity drops. Velocity is spurred by private sector activity, not transfer payments.

 

[Zander]

As I've noted before, this kind of reasoning is unnecessary and confusing. The monetary identity MV=PY where M is the money supply, V the velocity of money, P the general price level, and Y the total output is a definition. If you have a theory to account for any three, the fourth is fully determined. Since M, P, and Y have robust theories to explain them, a "theory of the velocity of money" overdetermines the system (i.e. is gibberish).

If you want a theory of the velocity of money, which other variable do you want to drop, money supply, inflation, or output?

I posted this thread because the Fed believe that inflation will drive velocity back up.

I find it interesting that despite the Fed's best efforts, they simply cannot increase velocity. That leads me to believe that velocity is more a psychological phenomenon not a mechanical one.

 

[Politico]

No it is mechanical. People are broke. No money to spend means no velocity. It is really quite simple.

 

[priceless]

No it is mechanical. People are broke. No money to spend means no velocity. It is really quite simple.

I think many people wake up to the fact that they don't like to spend themselves into debt-dependency when reality hits during recessions. Then when economic growth starts again and lenders are advertising credit, their consumption appetites seduce their minds once again into believing that they can borrow and just repay the money effortlessly later.

Because some people realize that they don't want to choose between being broke and being in debt, they are saving in the hopes of being neither. Could this account for the slower velocity of transactions?

Hello, btw, this is my first post on this forum.

 

[william the wie]

I go with the old "Adam Smith" theory of the 1970s: the money supply is not determinate. Therefore velocity is not determinate because wealth effects determine the degree to which stocks, bonds, and other assets act as money.

 

[The Rabbi]

It would explain why we have not seen inflation, despite unprecedented growth in the money supply.
But we are now starting to see inflation. The price indexes have been rising to levels not seen in some time.

 

[Toro]

It would explain why we have not seen inflation, despite unprecedented growth in the money supply.
But we are now starting to see inflation. The price indexes have been rising to levels not seen in some time.

Where? CPI is 2%, as it has been for many years.

 

[The Rabbi]

It would explain why we have not seen inflation, despite unprecedented growth in the money supply.
But we are now starting to see inflation. The price indexes have been rising to levels not seen in some time.

Where? CPI is 2%, as it has been for many years.

WASHINGTON: US consumer prices rise by most in 10 months - Politics Wires - MiamiHerald.com

Producer price gain offers cautionary note on inflation | Reuters

 

[Kimura]

Money velocity- the rate at which money changes hands- tends to rise when the economy is expanding and fall when it is contracting. Money velocity peaked in 1997 and has been falling ever since. It is setting record lows quarter after quarter since Q3-2010

Sliding velocity is the primary reason the Fed is inflating. They believe that inflation will force velocity back up. So far it hasn't been working. It's actually falling faster than at any other time in US History. The fall is occuring amidst the Fed's most aggressive monetary policy ever.

Definition of crazy? Doing the same thing and expecting a different result.....

Nominal aggregate demand is $$$$ times velocity. Just sayin'.

It's very difficult to create a sustained inflation. The FED has been trying since the tail end of 2007 and has had zero success. Central banks can't control the money supply, btw. Monetary targeting, as a policy, went out the window in the 1980s. Central banks can only control interest rates by exercising their authority.