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Velocity of Money & Money Supply compared to CPI inflation


In the 1930’s we had deflation and low velocity of money.  Today, we have extremely low velocity of money but we have not seen deflation.  Will it spike down?  

Here we can see M2 Money supply nearing all time highs.  During WW2 is the only time this has happened before.  If we do get a deflation spike down like the 1930’s from the first chart.  It is likely monetary policy kicks in with a lot more M2 Money supply.

I will always refer back to smart Global Macro Analysts, here’s Lyn Alden:

“Currency and debt devaluation (via inflation) historically precedes velocity. The first inflationary outcome after the previous long-term debt cycle, for example, began even as velocity secularly declined considerably vs its prior peak.”

We now see Velocity at all time lows M2 Money supply close to all time highs.  The question is what is CPI inflation going to do.  Will it spike down and go back up causing a major stock market correction and inflation at some later point in future years?

Why is the US experiencing non-inflationary devaluation?  Even with all this Monetary Policy inputting into the Money Supply (liquidity)?

Lyn Alden:  “Expansionary monetary policy with only moderate fiscal policy.”

One of her listeners asks:

“Lyn , in the previous red bubble , am I to presume the credit bubble was not as extreme as it is today. So you surmise our deleveraging will have a massive deflationary event first until the fiscal / monetary response can match credit destruction?”


Her answer here in this chart is inflation is a later stage in the process.  Deleveraging our Federal Debt would come sooner.  Watch for a major stock market correction.

Do you want to wait for this stock market correction or until we have high inflation to start investing in an uncorrelated asset that has appreciated 62,500% over the last 10 years?


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