M2 money velocity plunges most since 1959

Pimco’s Bill Gross tweets this afternoon that the Fed is contemplating an announcement next month of QE3. He cites no source or evidence other than the assertion that the Fed will be forced to keep buying bonds that no one else wants.  The VIX has plunged today perhaps on similar rumors.   This would likely prove highly incendiary of already inflated oil prices and particularly controversial announced within months of the next US Presidential election. Many, including UK Telegraph’s Ambrose Evans-Pritchard, have argued the Fed cannot roll out more QE this year for these very reasons.  See: Global liquidity peak spells trouble for late 2012.

But as the Eurozone moves deeper into recession and Chinese exports plummet, perhaps this next chart is the fire under the Fed. US money supply, both M1 and M2 have flattened so far this year, even contracted slightly in recent weeks, while velocity has plunged, with the M2 gauge dropping below 1.6 last week for the first time since records began in 1959 as shown in the chart from the Federal Reserve Bank of St Louis below.  The manic swings of the dying credit bubble continue to plague and haunt the global economy.

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5 Responses to M2 money velocity plunges most since 1959

  1. Gary T. says:

    Tough call – deflation fear vs. political will… either way this economy is ugly… and getting uglier. I wouldn’t put it past them to do a stealth QE – no announcement…

  2. John says:

    Yeah, anyone with actual savings better pray that money velocity does NOT increase quickly, or all that money the central banks have printed since ’08 will ignite a firestorm of inflation the likes of which we’ve never seen. Could they sterilize it before things got out of hand? Dunno, but a weak economy right now just may be the saver’s best friend (assuming they keep their job).

  3. d robertson says:

    Everyone knows the ship is sinking
    Everyone knows the captain lied…

    The economy is on its last breaths….any fool could see that. I asked an old lady coming out of my bank about the gas prices and she goes ‘Its a sin!’. Well, hang on to your money folks, you sure are going to need it…living in America is about to get a whole lot more expensive, especially if ObamaCare goes through…it is a royal mess.

  4. I’m starting to think I should start investing in canned food and bomb shelters!

  5. Barry says:

    From an article in the Globe and Mail last Monday …

    “In the BEA’s records, the ratio of domestic profit to GDI was only higher in 1929, at 8.8 per cent.”

    hmmm …


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