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Stagnation: M2 Money Velocity Continues Falling To All-time Lows!

This is a syndicated repost courtesy of Confounded Interest. To view original, click here. Reposted with permission.

M2 Money Velocity is the frequency at which one unit of currency is used to purchase domestically- produced goods and services within a given time period. It is measured by looking at the change in nominal GDP compared to the change in M2 money stock.

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M2 velocity keeps falling after peaking in 1997.  What is notable after the 1997 peak is that asset bubbles have replaced solid economic growth. For example, the highest GDP growth during the Clinton years exceeded 5% YoY, while the highest GDP achieved under George W Bush was 4.41% YoY. Real GDP YoY never exceeded 3.5% YoY under Obama.


In the following chart, you can see the decline in M2 Money Velocity with the infamous bubble burst and then the decline in M2 Money Velocity with the dreaded housing bubble burst. Given the tepid GDP growth that followed the housing bubble burst (and the dramatic increased in M2 Money stock), it is not surprising that M2 Money Velocity keeps falling.


As you can see, each exploding asset bubble is met with a recession and a massive surge (over 10% YoY) in M2 Money stock. The difference in the Obama years was a non-recessionary surge of 10% YoY in M2 Money stock without a recession.


Measures such a M2 Money Velocity become more and more useless as money printing becomes more prevalent (along with the failure of GDP to grow at previous levels). In fact, since the massive Federal Reserve intervention during The Great Recession,

The good news? The M1 Money Multiplier is almost back to 1.0!


In place of healthy GDP growth, the US has replaced it with asset bubbles that invariably burst creating even more problems.

Here is a GIF of The Federal Reserve trying to stimulate more GDP growth.


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