“IT’S VELOCITY, STUPID! IS THE VELOCITY OF MONEY THE FORGOTTEN VARIABLE OF MACROECONOMICS?” SOME THOUGHTS ABOUT THE TITLE OF MY BOOK AND THE VELOCITY OF MONEY IN THE U.S. IN RECENT YEARS (Orignially from 2015)

(I think that the blog entry below is from September 19, 2015.)



As I mentioned in the book, I am referring to myself, if anyone, when using the word ‘stupid’ in the title of the book (It’s Velocity, Stupid! Is the Velocity of Money the Forgotten Variable of Macroeconomics?). I should have been more aware earlier that maintaining greater levels of the velocity of money was a missing ingredient (perhaps the missing ingredient) from the U.S. economic recovery following the Great Recession. Large increases in the M1 money supply, combined with comparatively small increases in GDP spending, have driven M1 money velocity down by more than forty per cent in the United States after the fourth quarter, as shown in data on www.economagic.com and elsewhere.

Despite the M1 money supply more than doubling after December 2007, inflation in the GDP deflator has remained relatively low. With low inflation and relatively slow growth in real GDP, the increase in spending sought by policymakers has not fully materialized. This shows up clearly in the plunge in M1 velocity in the U.S. Will inflation remain low the U.S. if the velocity of money does not increase much further? Will the economic recovery continue to be sluggish without greater money velocity?