Velocity of M2 declining more quickly
In case you missed it, like I did, the velocity of the M2 money supply is declining more quickly. That normally indicates that the economy has taken the turn toward an eventual contraction.
Relevant and even prescient commentary on news, politics and the economy.
lol, except capital growth accelerated in the 2nd quarter. Instead of contraction, it looks like M2 is essentially another dead indicator that is either being mis-valued or mis-counted.
Sorry Ed, but your struggling here. M2 is down because the Boomers are causing brownouts. I would also argue, that China/SA have stabilized which suggests M2 will push up in the 2nd half of the year into next year. The US economy started a wage boom last year when oil prices stopped being so inhibiting toward real wages. I could see yry wage growth of about 2% in 2017, up from 1.5% now. That doesn’t spell contraction, that spells a boom in spending.
Some people watch the velocity of M2. I do not watch it closely. It is a minor indicator. But it still says something.
Alongside the wage boom, keep your eye on capacity utilization.
Velocity – it needs more understanding for sure, and so more study.
Time will provide the outcome here, but we should strive to establish some ‘causality’ to ‘velocity’s decline, that its data might be more helpful in the future.
Velocity measures the ‘turnover’ rate of that M2 money supply, which money metric is steadily increasing
https://fred.stlouisfed.org/series/M2
I would say that this Fed M2V chart is more indicative of the telltale trend .
https://fred.stlouisfed.org/series/M2V
It points to a 30 percent reduction in M2 turnover in the last ten years,
The velocity reduction means that money supply is not turning over, thus NOT making GDP.
This might reflect a reduction of about $3.6 Trillion in the use (GDP) of the $12 + Trillion M2 aggregate.
Where is it going, and why is it not turning over?
Business confidence?
In Fisher’s Debt-deflation theory, he clearly notes this velocity-reduction step as evidence of an output contraction (deflation) in progress.
(2) Contraction of deposit currency, as bank loans are paid off, and to a slowing down of velocity of circulation.
While QE and ZIRP have managed to keep the M2 money supply (Q – quantity) growing, me thinks the contraction of monetary velocity (V) is indeed measuring the deepening stagnation of economic throughput, China and capital formation notwithstanding.
Joe, I think QE and ZIRP are irrelevant. Once again, you are in the ‘I am not getting it gang”. M2 is irrelevant. Economic Stagnation? Since 1929?
We are a consumption based economy. Velocity of money is irrelevant. It is actually money that is being consumed that counts.