Inflation can be a pushing up daisies even if the government pumps boatloads of money into a sagging economy if and only if, the velocity of money is also stagnant. Cheap personal checks on the Velocity of Money are of the nature of viewing the frequency with which a dollar is spent for a certain amount of money over a given period of time.
There is no money to magnify growth if the ”velocity of money” is at a standoff. Even if Wall Street loses trillions of dollars and the government wantonly prints money to finance ill-conceived lobbyist paybacks, inflation will not occur until the velocity of money moves again.
A prevailing theory of economics is that one can get the economy going by spending yourself into a deficit. But, stimulating the economy will not work if it’s modus operandi is red ink deficit. A country or a household cannot spend its way out of in the hole liability; in fact, the risk profile begins to take on the appearance of some large Ponzi game plan.
The government cannot print money out of thin air in order to solve the velocity of money dilemma. People will not amp up purchases with their money in the marketplace because they are afraid. Fear makes them become more conservative in their buying habits.
Money is a measure of exchange created out of savings. In a barter economy, it would be difficult to exchange unequal units of production without a touchstone of exchange. Therefore a stable supply of money was created. If the velocity of money stayed the same and the money supply increased, inflation would bring the equation into balance again.
Since the government has created a debt crisis, until it is paid down, most authorities with sound financial credentials reason that confidence will wane. Even in the deflationary environment and economic crisis, the bottom will be reached. Eventually the velocity of money will improve and the economy will flow along more normally.
Meanwhile,That being said, the government has inflated the money supply gigantically. When the velocity of money improves and the economy takes off, so will inflation. As confidence turns the corner and all the extra printed money begins chasing a set amount of goods and services, inflation will ramp up accordingly.
This is the issue: when will you realize that confidence and money velocity increases are taking place? Read the Wall Street Journal and other newspapers and sources known for their financial sections and check the Consumer Confidence Index’s numbers. These numbers are known as ”leading indicators” and reveal economic trends well before they are observed by hard data.
The other well-known economic indicators that show change before the economy changes are: the National Association of Purchasing Management Index (NAPM), Curable Goods Order report, Gross Domestic Product (GDP) reports, the Producer Price Index (PPI), Employment Indicators, Retail Sales Index, Consumer Price Index (CPI) reports, Employment Cost Index (ECI) and the Productivity Report calculated how much output is created by a unit of labor.
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