All the economists are blathering on about how something is broken in the fractional reserve system, something that they need to fix. The issue is the same as it has been for the past 30 years. The government is grabbing far too much power for itself and is screwing things up. Always remember, the government has NEVER ever made anything better. Never.
A disturbing trend in the economy is the money velocity, which is how quickly the money in the system is moving through purchases, lending, payments, all the things that we use money for. Take all of it together and you get how fast the stuff is moving, or the M2 or the money velocity. It doesn’t matter that it’s electronic or physical – all if it moves from one person to another. Too fast and you have inflation. Too slow and you have a recession.
There are a couple of reasons why the money velocity is so low. First, the money velocity is so low is that people don’t have any extra money. We buy food, gasoline and pay bills and that’s pretty much it. Fewer vacations, less road trips, less going out to dinner. Mostly people stay home and plop their fat asses in front of the idiot box. The Fed is complaining that money isn’t being lent, nobody is making long term purchases. That’s because of the administration destroying what was left of the so called middle class for their super cool wealth redistribution program, or making the rich richer and giving money to the unproductive. And money spent on Yachts and drugs isn’t going to increase the velocity of money.
The money velocity or the movement of the money in the system is at it’s lowest since the 1950s.
When economic activity is high and at risk of going too fast, like in the 1990s, the money velocity is high, which means we’re buying a lot of stuff. The opposite is now happening. This is a rather graphic image of what an economic malaise looks like.
The second reason why the velocity is slow is pretty simple. Fewer people have jobs, the majority of jobs are now part time and the inflation rate is pretty high – saying it isn’t just because the Fed only measures it using prices that don’t change doesn’t mean the inflation isn’t wallowing it’s way through people’s budgets.
The cost of the forced health care system is now eating up a large portion of the money coming into households. People are still losing their homes, are having to cut back. The cost of the average monthly bills continues to go up, things like appliances are costing more and more.
I’ve written about it before until my fingertips were raw (I’m a very fast typist). I’m the type of person who remembers how much something cost in the past – it’s how I budget our food purchases. As recently as 2011, I was able to purchase 2 weeks worth of food for less than $75.00. That exact same food now costs over $100.00. Wages haven’t followed suit, thus the household money supply or it’s buying power has shrunk.
Once you’ve purchased your needed items, paid the bills and look at the amount of the household budget left over, it keeps getting smaller and smaller. I would bet that the money velocity in your own household is moving pretty slowly as well.
Look at the prices of your foods. Look at the prices of just about everything. Milk that was $2.00 a gallon is now $2.89. Cheese that was $2.25 is now $2.50. Same with meats like Chicken and Beef. Don’t even think about Fish these days. A package of 3 T-shirts is almost double of two years ago.
To learn more, follow this awesome Khan Academy video.