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Velocity of M2 Money Stock (M2V)  – StLouisFed.org

Please check out the above chart.  It is straight from the Federal Reserve itself.  Have you wondered why things haven’t felt so peachy since, well, the turn of the century?  Study this chart for a moment and see if you can discern any pattern.  Generally when it is going up, so is the economy.  When it turns down, usually a recession or slow down is occurring or follows shortly.  This chart is a picture of “velocity.”  Velocity in simple terms is the “turnover” of money.  When it turns over rapidly people are more or less spending freely.  Conversely when it contracts, people are or have pulled in their horns and are hanging on more dearly to their money.

This chart is exactly what the Fed has been fighting since the dot.com years.  As “turnover” has slowed the Fed has had to add more and more “money” into the system to take up the slack.  Conversely, as market participants have watched more and more “money” (debt) being created they have gotten more and more skittish, thus causing them to pull in their horns and hunker down further.  This will change.  I don’t however think that it will or can change “slowly.”  Once the rate of velocity turns up, it will already be game over.  This “game over” may only take as little as a couple of weeks because it will coincide with the end (precede slightly) of the current monetary system.  A “turn” in velocity (this chart) will mean that confidence which has slowly and very steadily eroded for nearly 15 years is snapping like an over stretched rubber band.

What I am saying is that a turn in velocity will not happen because the economy is getting “better” or that confidence is increasing.  No, quite the opposite.  Velocity will turn because confidence breaks and people will try to SPEND what they have… before it becomes worthless!  This “spending” by the way is cause, effect, result and response to hyperinflationary policy finally coming home to roost.  THIS always happens to fiat currencies.  It is Mother Nature’s way of clearing the decks for a new monetary system to take hold.  Any new monetary system will be by necessity, one that the populace has confidence in.  Another new “fiat” regime will not do the trick.  Whatever the new currency(s) turn out to be you can bet the farm that gold, silver, oil and or other real assets will be part of the backing.

“Faith” is not going to cut it.  Especially after “faith and trust” (being broken and abused) is exactly what got us to the breaking point in the first place.  Before finishing I would also like to add that this chart is the epitome of a classic bubble bursting.  The final and panic blow to this bubble will be the banks going under, the “turn” will be when everyone who still does have available “cash” spends it like plague money!