The Velocity of the Money Supply | The Great Depression vs The Current Crisis
By Hubert Moolman
3 June 2024
I have previously pointed out how conditions during the Great Depression (GD) are similar to some economic conditions since the 2008 financial crisis (GFC). One of the important similarities, was the large drop in the velocity of the money supply.
The velocity of money is a measurement of the rate at which money is exchanged in an economy. In other words, it is a measure of general liquidity in the market. The velocity of money is usually measured as a ratio of gross domestic product (GDP) to a nation’s M1 or M2 money supply.
High money velocity is usually associated with a healthy, expanding economy. Low money velocity is usually associated with recessions and contractions. In the case of the GD and the GFC it was a sign of contraction and hoarding of cash (people were not borrowing and spending enough).
This is a big problem for a debt-based monetary system since it is dependent on the expansion of the money supply and credit. If the system cannot expand the money supply and increase credit, it will eventually die.
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Warm regards,
Hubert Moolman
And that, knowing the time, that now it is high time to awake out of sleep: for now is our salvation nearer than when we believed.
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