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. Velocity of money is the frequency with which a dollar is spent for a certain amount of money over a given period of time.
If the velocity of money is at a gridlocks there is nothing to inflate. Even if a given stock market vaporizes trillions of dollars as the stock market collapses and misguided government printing money to finance all the politicians ill-conceived paybacks to lobbyist, nothing inflationary will happen until the velocity of money accelerates.
The eccentric Keynesian theory of economics says that the economy can be ‘’stimulated” by deficit spending. However, encouraging a working, affective economy will not be possible if in the hole liability is looming. A country or a household for that matter cannot borrow money to spend its way out of in the red obligations. The situation’s risk profile is very similar to a huge Ponzi operation gamble with the taxpayer holding an empty bag!
The velocity of money situation cannot be improved by printing money. People are holding onto their money and not buying as much because they are worried about the future. When they are unnerved, people generally act more reserved in their buying habits until their fears dissipate.
The whole system of money changing hands arises out of people saving their money. In a barter economy, equal units of exchange are essential for a proper yardstick of exchange. So, a standard supply of money was created. If the money supply expanded and the velocity of money was stagnant, inflation would balance it out again.
Since the government has created a debt crisis, until it is reduced, most economists conclude 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 federal government has extremely inflated the supply of money. As communicated earlier, the inflation will take hold as the economy accelerates and as the velocity of money turns the corner. As all the extra printed money chasing a particular amount of goods and services, inflation will take off in the same fashion.
This is the issue: how will you figure out when the increase in the velocity of money is taking place in the economy? Make sure you look over financial newspapers like the Wall Street Journal for their published Consumer Confidence index numbers. These is known as one of the ”leading indicators” and highlight trends in the economy a few months before hard data bears them out.
The other premier bread-and-utter signals that show change before the economy changes are: Gross Domestic Product (GDP) reports, Consumer Price Index (CPI) reports, the Producer Price Index (PPI), Employment Indicators, Retail Sales Index, the National Association of Purchasing Management Index (NAPM), the Consumer Confidence Index, Curable Goods Order report, Employment Cost Index (ECI) and the Productivity Report which measures calculated how much production is created by a unit of labor. Presented by Cool Checks
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Tags: consumer price index, deflation, economic conditions, inflation, stock market