Captain Kirk: Scotty, we need more velocity.....now!
Scotty: I'm on it captain......but I don't know how much more she can handle!
Growing debt levels, velocity of money plummeting, FOMC continuing accommodation....
Looks like the final frontier.....
Sounds like an original Star Trek series episode!
Fighting Recessions With Hot Air
More Hot Air
We think both Duncan and Krugman are wrong. An economic boom, based on nothing but hot air (phony credit, with no real resources behind it), is fraudulent. It will never take us to real growth. Just the contrary. The best thing to do is to pop the bubble…and then pick up the pieces. Besides, it will pop whether we want it to or not.
Heck, we believe in magic as much as the next guy. But the magic act is wearing a little thin. The smoke is dispersing. The rabbits have disappeared. All the glam and sparkle, the shock and awe, the claptrap and hokum – they’re all giving way to economic reality.
We are beginning to see more clearly: the Fed’s theory is nothing but hot air. Now, its funny money is doing something even funnier than it imagined: the exact opposite of what the central planners intended. In yesterday’s Market Insight, Chris showed how the “velocity of money” is plummeting.
The “velocity” of M2. Actually, this is mainly telling us that the Fed has printed a huge amount of money and that surprise, surprise, it hasn’t produced much economic growth. When it begins to rise, it will mainly indicate that the demand to hold cash is declining as confidence in the currency is evaporating – when that happens, we will start to see wide-spread “price inflation” and even less real economic growth – click to enlarge.
This is serious. The velocity of money tracks how often each dollar is used to buy something in the economy. Falling velocity shows that consumers and business are pulling back… becoming more reluctant to spend and invest…downsizing… and holding onto dollars rather than spending them.
This has a similar effect as reducing the supply of money bidding for goods and services. Prices drop. Deflation, in other words.The bubble has developed a leak. The hot air is gushing out. Look out below…
