Even if the government pumps money into the economy, an inflated economy cannot take off if the velocity of money is also not moving. ”Velocity of money” is the rate whereby a dollar is spent over a certain period of time.
If the velocity of money is at a stalemate there is nothing to inflate. Even if a given stock market wipes out trillions of dollars as the stock market collapses and misguided government printing money to finance all the politicians ill-conceived paybacks to lobbyist, nothing inflationary will happen until the velocity of money accelerates.
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 IOU arrears by borrowing more money. This type of risk profile begins to look like a gigantic Ponzi operation with the American taxpayer on the hook.
Printing money out of thin air cannot solve the velocity of money problem. When people are not spending money for goods and services, it is because they are a bit shaken. When they are a bit shaken, they become more conservative with their purchases until a confident rock bottom is reached.
Money is a standard of exchange arising out of people’s savings. In an economy based on bartering, it would be impossible to exchange unequal items without an exchange touchstone. So, the government created a stable supply of money. If the velocity of money was stagnant and the supply of money enlarged, inflation would bring it into balance.
If the government has created a deficit crisis, until it is looking like it can be paid off, international confidence and consumer morale in the dollar will flounder. A all-time low base will be reached even in a huge economic crisis. In the long run Sooner or later, the economy will eventually flow again normally and the velocity of money will move in like manner.
Meanwhile, the government has greatly inflated the amount of money it generates. When the economy eventually takes off and the velocity of money improves, so inflation will also. As consumer confidence grows and all the extra printed money follows after a set number of services and goods, inflation will surge correspondingly.
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 bread-and-utter indicators that show change before the economy changes are: the National Association of Purchasing Management Index (NAPM), Curable Goods Order report, Gross Domestic Product (GDP) reports, the Producer Price Index (PPI), Employment Indicators, Retail Sales Index, Consumer Price Index (CPI) reports, Employment Cost Index (ECI) and the Productivity Report evaluated how much output is created by a unit of labor. Brought by Cool Checks
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