The last several years has seen a huge
increase in the English speaking North America money supply. “Huge” =
trillions, not billions. Yet in spite of that, we have not seen much price
inflation. Why not?
The key is velocity of money. This is how fast money is changing hands. How
quickly it’s being spent. Prices rise from too much money chasing too few goods
and services. What if there is lots of money, but it isn’t doing any chasing?
That’s what’s been going on. So much of the new money has been parked that it
hasn’t pushed up prices. Interest rates will likely be rising in the short-term
(see http://gordonfeil.blogspot.ca/2016/11/dollars-dollarettes-and-interest-rates.html),
but later if we have negative interest rates (see http://gordonfeil.blogspot.ca/2016/11/election-bombs-and-closing-casino.html)
money should start moving according to conventional wisdom. Not so likely
though, as discussed at http://gordonfeil.blogspot.ca/2016/11/election-bombs-and-closing-casino.html.
Interesting. Do you have any explanation as to why the "velocity" of money has slowed down? Does it have to with people spending less, or maybe just spreading out where they spend it so it has less effect on a various products? Or something else altogether.
ReplyDeletePursuant to the monetary crisis of 2008-9, the Federal Reserve dumped huge amounts of money upon banks. Instead of using it to loosen their lending polices, they sat on it. So the cash wasn't really available to circulate.
ReplyDelete