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The Collapse Of Velocity And Its Impact On Rate Policy

Published 06/07/2015, 01:44 AM
Updated 07/09/2023, 06:31 AM

European Bonds go for Scary Ride - Laughable the IMF thinks the Fed controls interest rates

Velocity
Snippet from Pivotal Events, June 4, 2015

GDP/St. Louis Adjusted Monetary Base

  • The collapse of velocity in 1930 was the public’s choice to hoard cash. It was very distressful to policymakers.
  • It prompted Keynes to invent a “new” theory of forced inflation.
  • Forced inflation has been “on” ever since.
  • This one is GDP/Monetary Base, with data back to 1929.
  • The big change was made in 1980, close to the all-time high in commodities.
  • For those who still think that Volker personally ended CPI inflation, he is to blame for collapsing velocity.
  • For those interested in real financial history, this measure of velocity is plunging at the greatest rate since 1930.
  • Velocity increased with the 1932 to 1937 bull market.
  • This has not been the case with the bull market that began in 2009.
  • Will the recent collapse prompt a new policy making theory?

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