Inflation can be a dead issue even if the government pumps boatloads of money into a sagging economy if and only if, the velocity of money is also sluggish. Velocity of money is the frequency with which a dollar is spent for a certain amount of money over a given period of time.
There is no money to balloon and expand if the ”velocity of money” is at a standstill. Even if Wall Street loses trillions of dollars and the government wantonly prints money to finance ill-conceived lobbyist paybacks, inflation will not occur until the velocity of money moves again.
The wacky Keynesian economic theory holds that one can “stimulate” the economy by deficit spending. Leveraging or stimulating the economy cannot work if the stimulus is via debt. You cannot spend your way out of debt by borrowing more money. This type of risk profile begins to look like a gigantic Ponzi contrivance with the American taxpayer on the hook.
The velocity of money situation will never be mended by printing money. People will only hold on to their savings and not buying as much because they are worried about the future. When they are rattled, people generally act more reserved in their buying habits until their fears dissipate.
The whole system of money changing hands arises out of people saving their money. In a barter economy, equal units of exchange are essential for a proper measure of exchange. Therefore, a standard supply of money was created. If the money supply expanded and the velocity of money was stagnant, inflation would balance it out again.
If the government has created a deficit crisis, until it is looking like it can be paid off, international confidence and consumer sureness in the dollar will flounder. A all-time low base will be reached even in a huge economic crisis. When all is said and done, the economy will eventually flow again normally and the velocity of money will move in like manner.
For the time being, the federal government has greatly inflated the supply of money. As communicated earlier, the inflation will increase as the economy revs up and as the velocity of money improves. As all the extra printed money chasing a particular amount of goods and services, inflation will increase in the same fashion.
So, the question is, when do you see confidence and increase in money velocity taking place in the economy? The answer lies in checking the Wall Street Journal or other financial newspapers for their Consumer Confidence Index published numbers. The Consumer Confidence Index is acclaimed the leader amongst other indexes that belong to a special group of statistics that are known as ‘leading indicators’ and can reveal trends in the economy several weeks before they become apparent by harder objective data.
The other outstanding economic indicators that show change before the economy changes are: Gross Domestic Product (GDP) reports, Consumer Price Index (CPI) reports, the Producer Price Index (PPI), Employment Indicators, Retail Sales Index, the National Association of Purchasing Management Index (NAPM), the Consumer Confidence Index, Curable Goods Order report, Employment Cost Index (ECI) and the Productivity Report which measures calculated how much output is created by a unit of labor. Presented by Cool Checks
