Inflation can be a dead issue even while the federal government pours money into the economy if the ”velocity of money” is also sluggish. ”Velocity of money” is how often a dollar is spent over a particular time period.
A non-moving stalemate velocity of money will result in deflation. Even if the stock market lost trillions of dollars and the government decides to print money to pay off politicians’ promises to lobbyists, nothing inflationary will take place until the velocity of money swells.
The unpredictable Keynesian theory of economics says that the economy can be ”stimulated” by deficit spending. However, encouraging a working, affective economy will not be possible if red ink deficit is looming. A country or a household for that matter cannot borrow money to spend its way out of IOU arrears. The situation’s risk profile is very similar to a huge Ponzi operation gamble with the taxpayer holding an empty bag!
The government cannot print money out of thin air in order to solve the velocity of money dilemma. People are not spending their money in the marketplace because they are afraid. Fear makes them become more conservative in their buying habits.
Money is a benchmark of exchange created out of savings. In a barter economy, it would be difficult to exchange unequal units of production without a benchmark of exchange. Therefore a stable supply of money was created. If the velocity of money stayed the same and the money supply increased, inflation would bring the equation into balance again.
Because the government has created a debt crisis, until it is paid down, most authorities with sound financial credentials reason that confidence will wane. Even in the deflationary environment and economic crisis, the bottom will be reached. Eventually the velocity of money will improve and the economy will flow along more normally.
For the time being, the government has greatly inflated the amount of money it generates. When the economy eventually takes off and the velocity of money improves, so inflation will also. As consumer confidence grows and all the extra printed money follows after a set number of services and goods, inflation will surge as a result.
So, the question is: when will you realize that confidence and money velocity increases are taking place? Read the Wall Street Journal and alternative newspapers and sources known for their financial sections and check the Consumer Confidence Index’s numbers. These numbers are known as ”leading indicators” and communicate economic trends well before they are observed by hard data.
The other premier economic indicators that show change before the economy changes are: the National Association of Purchasing Management Index (NAPM), Curable Goods Order report, Gross Domestic Product (GDP) reports, the Producer Price Index (PPI), Employment Indicators, Retail Sales Index, Consumer Price Index (CPI) reports, Employment Cost Index (ECI) and the Productivity Report calculated how much turnout is created by a unit of labor. Brought by Cool Checks
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It is understandable that money makes people disembarrass. But what to do if somebody does not have cash? The one way only is to try to get the loans or collateral loan.