Inflation can be a pushing up daisies even while the federal government pours money into the economy if the ”velocity of money” is also stagnant. ”Velocity of money” is how often a dollar is spent over a particular time period.
A non-moving stalemate velocity of money will result in deflation. Even if the stock market lost trillions of dollars and the government decides to print money to pay off politicians’ promises to lobbyists, nothing inflationary will take place until the velocity of money expands.
The wacky Keynesian economic theory holds that one can “stimulate” the economy by deficit spending. Leveraging or stimulating the economy cannot work if the stimulus is via debt. You cannot spend your way out of red ink deficit by borrowing more money. This type of risk profile begins to look like a gigantic Ponzi scheme with the American taxpayer on the hook.
Printing money out of thin air cannot solve the velocity of money problem. When people are not spending money for goods and services, it is because they are a bit shaken. When they are a bit shaken, they become more conservative with their purchases until a confident all-time low base is reached.
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 standard 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.
The federal government created a debt crisis, and consumer confidence will be low until that IOU arrears is paid off. Yet, even in a deflationary situation, the bottom will eventually be reached. The velocity of money will move along in time and the economy will be set to rights again.
Meanwhile, 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 increases and all the extra printed money follows after a set number of services and goods, inflation will surge as a consequence.
Nonetheless, here is the question: 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 broadcast economic trends well before they are observed by hard data.
The other leading financial guides that show change earlier than the economy changes are: the Producer Price Index (PPI), Employment Indicators, Retail Sales Index, the National Association of Purchasing Management Index (NAPM), Curable Goods Order report, Gross Domestic Product (GDP) reports, Consumer Price Index (CPI) reports, Employment Cost Index (ECI) and the Productivity Report which evaluated how much turnout is created by a unit of labor. Provided by Cool Checks
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