Monday, November 3, 2014

Velocity of Money fading

We showed this graph about a year ago. Money velocity is still falling, and now it indeed look like a "Deja vu" of the period 1918 to 1945.

Source Federal Reserve Board

The velocity of money from 1900. And as the graph over shows, in deflationary periods velocity can slow even more than it has recently.

When money velocity is rising, it usually means the economy is expanding. When money velocity starts to fall as we saw after 1918 it usually means the economy is slowing down or even worse contracting.

Much of the developed world is at the very the end of a 60-year-long Debt Cycle. This time the cycle is longer than previous ones due to the reckless economic policy measures by the central banks and governments using enormous credit expansion to finance over investment and over indebtedness. This has prolonged the cycle and at the same time has left the Western world uncompetitive. The culmination of decades of  borrowing is upon us.

Geir Solem

Elliott Wave Technician
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