An
obscure but important record has been set in October: the velocity of money
has set an all-time low. The velocity of money is defined as the number
of times each dollar is spent to buy goods and services per unit of time.
This is, on its face, shocking in a period of a rising US stock market and a
growing economy. One would think that each dollar would be circulating
faster and faster in such an environment. But analysts Viktor Shvets and
Chetan Seth at global investment bank Macquarie Group note that “there is
nothing normal in the current environment of unprecedented financialization and
economic disruption.” They go on to explain that with the U.S. Federal
Reserve and other major central banks around the world having pumped such massive
amounts of money into the global financial system, there is simply too much
money sloshing around in the system for the money to achieve anywhere near the
“normal” range of monetary velocity and turnover. They also wonder if the
artificial money buildup was the dominant reason for stock market gains and
economic expansion, in place of the more traditional reason of honest to
goodness increase in demand for goods and services.
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