Peek At Inflation: Cool Checks That Lead To Recovery
Inflation can be a resting in peace even if the government pumps boatloads of money into a sagging economy if and only if, the velocity of money is also not moving. Velocity of money is 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 inflate and swell up if the ”velocity of money” is at a gridlock. 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 debt. 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 scheme.
The velocity of money situation will never be mended 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 become more conservative in their buying habits until their fears dissolve.
Money is a benchmark of exchange arising out of people’s savings. In an economy based on bartering, it would be impossible to exchange unequal items without an exchange touchstone. So, the government created a stable supply of money. If the velocity of money was stagnant and the supply of money enlarged, inflation would bring it into balance.
Because 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.
At the same time, the government has greatly inflated the amount of money it generates. When the economy eventually takes off and the velocity of money improves, so inflation will also. As consumer confidence grows and all the extra printed money follows after a set number of services and goods, inflation will surge accordingly.
So, the question is: how will you gauge when the increase in the velocity of money is taking place in the economy? Make sure you check 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 couple months before hard data bears them out.
The other highest 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 evaluated how much turnout is created by a unit of labor. Brought by Cool Checks
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