Visualizing the Vanishing Money Velocity Vortex


by Bruno de Landevoisin  @ StealthFlation

Having recklessly impaired the original clean source of healthy naturally effervescent American spring water abundantly spouting up from the bedrock below, the misguided monetary authorities have dangerously attempted to artificially inseminate the clouds above, in the hopes of drenching the parched U.S. soil with torrential rain, so as to generate their much heralded and forever promised green shoots.  Regrettably for us all, when these artificially seeded clouds eventually do burst, they will produce nothing but the toxic inflationary rains of StealthFlation.

Under the imposition of StealthFlation, the Velocity of Money lies dormant while increasing Inflationary risks build below the surface.


The inflationary risks are deliberately concealed and remain latent due to the synthetic suppression of determinant free capital market forces.  However, the grossly excessive supply of money has definitively been created, and it will debase the currency via inflation, it's just a matter of time.

When an economy is healthy, there is much buying and selling and money tends to move around quite swiftly. Unfortunately, the U.S. economy is manifesting the precise opposite of that these days.  In fact, the velocity of M1 & M2 has fallen to near all-time record lows.  This is a very serious indication that the underlying economy has entered a period of extreme stagnation.

In its infinite wisdom, the Federal Reserve has been attempting to counter this economic standstill by absolutely flooding the financial system with new money.  As it always does, this has created monumental financial and fixed asset bubbles, however, it has not addressed what is fundamentally and structurally wrong with our economy.  On a very basic level, the amount of real economic activity that we are witnessing is not anywhere near where it should be, and the anemic flow of money through our economy is proof certain of the ongoing dilemma.


Clearly, the transmission mechanism between the relentless synthetic origination of fresh money by the monetary miracle men and the velocity at which that new money is circulating in the real underlying economy on the ground is completely disconnected, FUBAR.  Why is this?  Well, it’s really not that difficult to comprehend.

First of all, much of the supposed economic activity generated today is not being driven from the the bottom up by the healthy deployment of excess savings naturally created from genuine self-sustaining productive economic activity at the fundamental level, but rather in an unnatural fashion, force fed from the top down via the easy street ZIRP/QE induced debt financing incessantly being encouraged by our misguided megalomaniac monetary authorities.

Perhaps even more malignant, the largest capital market of them all, namely the U.S. bond market has been put down by the Fed’s activist zero bound anesthesiologist.  Thus, the utterly comatose American treasury market is no longer facilitating the natural growth of traditional savings income streams generated via secure interest bearing accounts and prudential savings products throughout the financial system’s depository structure. In short, the healthy income flows constructively generated from legitimate savings produced from genuine economic activity, namely people going to work every day, has been effectively terminated by these wizards of wanton monetary policy at the wayward central bank.

Let’s face it, if the major pension funds can’t generate 5-6% per year holding conservative debt instruments in order to meet their massive obligations, they are up a creek without a paddle.  They require substantive returns in order to remain solvent.  The Fed understands this all too well, they are most concerned on that score, and so should you be.

Having thoroughly shut down the sound, well established and effective channels of capital formation, which have consistently engendered bona fide and constructive growth over the years through the virtuous avenues of productive savings, the foolish authorities have left themselves utterly hamstrung with only one risky road to travel down.  Indeed, now that they have totally cracked the transmission on our fiscally busted and broken down American bus, they have become 100% reliant on the equity market to drive their top fuel funds into the U.S. economy via the wealth effect.  Pedal to the metal at 2,000 SPX mph.  Make no mistake my friends, we are on a crash course from hell, and we will hit the wall.  God help us all……………

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