Thus, US, Japan and Eurozone money velocity, measured as the nominal GDP to M2 ratio, has declined from 1.94x, 0.7x and 1.29x respectively in 1Q98 to 1.5x, 0.55x and 1.05x in 2Q15 (see Figure 3). But even beyond that, it has outpaced growth in the economy as a whole as monetary stimulus continued. This is why retail participation in equities remains at historic lows and things like gold have declined rather than rallied. If the expiration date has passed, that would explain why your credit card declined. A possible answer lies in the combination of two issues:The dramatic decrease in interest rates that has forced investors to readjust their portfolios toward liquid money and away from interest-bearing assets such as government bondsIn this regard, the unconventional monetary policy has reinforced the recession by stimulating the private sector’s money demand through pursuing an excessively low interest rate policy (i.e., the zero-interest rate policy).”The implications of these two potential causal factors are that the Federal Reserve is in fact perpetuating the financial crisis and not solving it.
Both the federal government and the Federal Reserve have made the housing bubble crisis even worse because of their efforts to stimulate the economy.The velocity of money can be increased with the resultant improvement in economic activity and the economy into a growth mode with meaningful jobs only when government and Federal Reserve remove the uncertainty which is paralyzing economic growth.Government regulations and their stranglehold on economic activity make economic expansion painful at best.
(I have used M2 as the more inclusive monetary number here.) Diversification does not assure a profit or protect against loss in declining markets.The S&P 500 Index is a broad-based measurement of changes in stock market conditions based on the average performance of 500 widely held common stocks. It might lead to other problems such as inflation, of course, but that is not the current worry.You can see from the chart below that, over the past 20 years, money supply growth and GDP growth have actually gone in opposite directions.
Should the Federal Reserve increase interest rates, the impact on the federal debt and deficit will destroy the federal budget due to increasing interest expense on the federal budget. 0813 Exceeded account velocity amount . One potential culprit is the fall of the savings rate.
Once again, keep calm and carry on.The information on this website is intended for informational/educational purposes only and should not be construed as investment advice, a solicitation, or a recommendation to buy or sell any security or investment product. From a theoretical perspective, there are four variables that could drive a decline in velocity.
It is a question of liquidity vs. money … Indeed, US money velocity is now at a six-decade low. This chart also shows that both growth and velocity are improving in recent quarters, which again is what you would expect if velocity followed growth rather than caused it.
Frank Ryan, CPA, USMCR (Ret) and served in Iraq and briefly in Afghanistan and specializes in corporate restructuring and lectures on ethics for the state CPA societies. The money one person spends for goods and services at any given moment can be used later by the recipient of that money to purchase yet other goods and services. You just need to get the new card and activate it. Real disposable income has been declining or stagnant at best which provides a contrary indicator to the unemployment rate and inflation rate.The net effect of all of these issues is that federal government efforts at stimulating the economy through deficit spending, and the Federal Reserve’s efforts at stimulating the economy through low interest rates have been largely ineffective and perhaps counterproductive.The velocity of money and its precipitous decline indicate that the consumer and businesses are not comfortable with the risks that they see in the economy and are not spending.