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Velocity Of Money And The Glaciers Of Complacency

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Posted on 17 November 2020 Written by Constantin Gurdgiev, TrueEconomics.Blogspot.in Despite massive money printing by the Fed in the years post-GFC and again since the start of the COVID19 pandemic, velocity of money in the U.S. is actually shrinking, and sharply so during the pandemic.Please share this article - Go to very top of page, right hand side, for social media buttons. Considering the data through 3Q 2020, there is little improvement across the board: You can barely notice 3Q 2020 uptick from the pandemic lows in all three measures, the M1, M2 and MZM. And here are differentials:Precautionary savings motives (blue line) remain extremely elevated, while investors' willingness to trade assets (in a bull market, a sign of more active management of portfolios) stays

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posted on 17 November 2020

Written by , TrueEconomics.Blogspot.in

Despite massive money printing by the Fed in the years post-GFC and again since the start of the COVID19 pandemic, velocity of money in the U.S. is actually shrinking, and sharply so during the pandemic.

Velocity Of Money And The Glaciers Of Complacency


Please share this article - Go to very top of page, right hand side, for social media buttons.


Considering the data through 3Q 2020, there is little improvement across the board: You can barely notice 3Q 2020 uptick from the pandemic lows in all three measures, the M1, M2 and MZM.

Velocity Of Money And The Glaciers Of Complacency

And here are differentials:

Velocity Of Money And The Glaciers Of Complacency

Precautionary savings motives (blue line) remain extremely elevated, while investors' willingness to trade assets (in a bull market, a sign of more active management of portfolios) stays stubbornly low. Which implies that the shift from the pandemic impact to the recovery did not do much to alter demand for money, nor to break away from the monetary policy-supported glut of liquidity available to the economy as a whole and to the financial markets specifically.

You can see a massive spike in precautionary savings in March 2020 in the following graph:

Velocity Of Money And The Glaciers Of Complacency

These charts indicate that the Fed's ability to support demand side of the economy is declining, as consumers have been drastically reducing their willingness to spend. They also suggest that investment markets liquidity has declined over time. All together, the above charts show the declining effectiveness of monetary policy in the age of ultra low interest rates.

It is all as if we have frozen, from monetary policy point of view, in a singular tidal wave - a glacier of households' unease and investment markets complacency.

This article is derived from a combination of two posts at True Economics:

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