Wednesday, August 8, 2012

Velocity of Money

I hope my friends will take the time to read this, study this chart and gain a little more insight into what’s going on.  Even if I am wrong it will give you something to think about and maybe even a different way to look at your country and economy. 

Velocity of Money is the rate of turnover in the money supply;  In other words, the number of times one dollar is used to purchase final goods and services included in GDP. 

In a healthy robust economy this velocity is high and in a growing economy the number is increasing. 
In almost all cases this velocity of money peaks just before a recession.  In this chart you can see the build up in the 90’s to the eventual bursting of the tech bubble.  During the rise in the real estate bubble you can see the velocity increase into 2006 or so and peak just prior to the beginning of the recession starting in 2007.  Velocity falls rapidly and begins to swing upward around 2009.  That was due to QE1, QE2 and the latest fed attempt called TWIST.  Those are simply cash injections by the FED intended to stimulate the economy.  You can see that as long as the FED was injecting cash the trend was up.  These “Quantative Easings” were taken by the banks but not loaned into the economy.  Rather the money was basically used by banks to further gamble in the markets.  Almost as soon as the QE’s were complete the trend in velocity turned down.  This velocity is now the lowest since about 1955.  The reason for the markets going up is two fold.  One is the value of the dollar is down which make the value of equities higher and two, the banks are gambling in the market rather than loaning out the money provided by the FED.  Money, which by the way, came into existence as DEBT to the government.  Our money is debt based meaning that all money coming into existence does so as debt. 

Now, some accuse me of being doom and gloom but I am simply pointing out the facts.  The cheerleaders can point to all sorts of things and BS themselves and others into believing that everything is improving and we are in recover from a recession.  My view is that we have been in a depression since late 2006 and are about half-way through it with more pain ahead. 

This is not your grandfather’s depression but a worldwide depression brought on by the creation of massive amounts of debt fostered by about 9 banks most of which are US.  Since money just doesn’t go to “money heaven” someone gets it.  This is the largest transfer of wealth in the history of mankind.  It tried to right itself and should have resulted in massive loss by these banks.  But what happen in actuality was the government assumed the debt and ate the losses of these gambling banks by making them whole with the debt of the citizens. 

This is not free market capitalism but rather corporatism, fascists, hegemony or something worse when government pretends they can control the economy.  If it was a case of free market capitalism these banks would have failed and cease to exist.  There would have been a great deal of pain and loss by some and the system would have by now begun to reset and recover.  The problem seems to be who loses and in this case the government decided to save the idiots and give the people 20 years of pain and loss in favor of the well connected.  Why did they do this?  Because they figure that the people are ignorant and won’t understand.  In most cases they are right because government education has swindled several generations out of knowledge and stripped away the ability of the average citizen to think and learn. 

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