Monday, April 25, 2016

That's Not Good

The velocity of money has crashed to the lowest level in 57 years.
The velocity of money is the rate at which it changes hands.  You can see from the chart that through the tech bubble of the 90s, the velocity was the highest value on this chart (which goes back to 1960).  Around the 9/11 attacks it dropped back toward the previous levels, but the interest rate cuts and other activities of the Federal reserve helped it pick back up, until the real estate bubble they created blew creating the crash of '08.  After '08, despite all the money printing quantitative easing and ZIRP from the Fed, they never were able to get the number back into its historic range.

The velocity of money reduces to a simple algebraic equationVt*M=nT
Vt   is the velocity of money for all transactions.
  is the total amount of money in circulation on average in the economy (see “Money supply” for details).
nT  is the nominal value of aggregate transactions.
The idea here is that if the Fed printed a quadrillion dollars and put them in a safe, they wouldn't be inflationary because their velocity is zero. The problem is that this theoretical boundary case tells us nothing.  I mean, if a bank holding those imaginary dollars really needed them, like to stave off bankruptcy, do you doubt they'd use them?

So what does this collapse mean?  For one, there sure is no sign of an economic recovery going on, nor has there been one.  You've heard, I'm sure, the "great recession" ended in '09?  Not by this chart.  I figure the next "little while" (year? two? we're extrapolating off the end of that curve) is going to look more like the last eight years than a healthy economy.   


  1. The bastards have been lying through their teeth for over a decade and that certainly looks more like a Depression than a Recession to me.

    You can see the money velocity drop on that chart during the recessions of the 80's pretty easily and I remember the one from the early 80's pretty well.

  2. I have no doubt that chart is accurate, and that it's pretty scary; what I find even more scary is what may be deeply buried within the fine granularity of the chart:

    The firearms and ammunition business appears to be doing well; Mountain House nearly sold out of inventory completely last fall; Brownells looks to be doing well in the AR spare parts area, given how much is "out of stock" at any given time; wool pants and waterproof boots are in short supply (which may be simply inventory shortages due to upstream manufacture reasons or seasonal stocking levels rather than sales volume); a local insulation contractor specializing in retrofit/addition is quite busy; seed sales locally are brisk, but not for flowers; shooting instructors have full classes; the list goes on.

    I suspect overall money velocity has declined very substantially, but some micro-spending areas are maintaning velocity, perhaps even improving. Were I ensconsed within an ivory tower still equipped with a view I think I would have great concern about not only the macro- but some of the micro-economic indicators.

    In other news, one year of tuition at Yale buys large quantities of freeze dried food and ammunition. Film at 11.

  3. AARGH !
    Fat fingered "ensconced"

    SiG, you need to add a comment editing feature like Sebastian and Joe Huffman have. Those of us with sloppy keyboarding (and proof reading....) skills could use it.

    1. I don't know what software they use to do that, but I'll look into it. I thought it was Wordpress, because somehow you can use Wordpress comments on a Blogspot blog and it allows you time to edit what you posted. Doesn't look like WP though.

  4. Exactly - 'down turn' industries are doing well; not only guns, ammo, and seed but also alcohol and other vices have done well.
    On the flip side, luxury/ extra cash activities have been cratering - golf, scuba diving, private aviation, power boats, I know have all dropped; I suspect tennis and other similar events have as well.
    Most states used to only require registration on power boats or sailboats over a certain size; as people have shifted to cheaper human powered vessels (kayaks, stand up paddleboards, etc) many states are changing their laws to require registration of ALL vessels to sustain their funding.
    The administration and economic cheerleaders claim the economy is going well and say that supports a Democratic win in the fall (the incumbent party tends to win in good economic times), but many people don't see the supposed upturn, or suspect the numbers are doctored, so I don't think that will be the support they hope for!

    1. Another thing I've noticed is increasing requirements for building inspection for little things done around your house. Then they almost play a game of trying to come by when you're not there so that they can hang a note on your door saying they came and you weren't there. That's another $25 or $50 to get them to come back

      Here in Florida, the enviro-weenies have done so much damage to power boating that kayaks and paddleboards are almost self-defense for fisherman. They're the only way to fish. They've made miles and miles of waterway into "No Wake Zones" where a powerboat can't go any faster than a kayak anyway, all in the name of protecting the manatees.

      They can't make every square inch of the water "No Wake" because the has control over the the Intracoastal Waterway and that's used for intrastate commerce, but there are not only no wake zones, there are miles of no motor zones. If nothing else, it's frustrating to not be able to use the motor on your boat.

  5. They've cleaned the bank, all that's left is to torch the place (War) as they walk out the door...