Generational Dynamics World View

[David Horn]

(02-02-2020, 12:17 PM)John J. Xenakis Wrote: ** 02-Feb-2020 World View: Velocity of Money

I had an e-mail discussion with someone who is predicting inflation from the coronavirus problem.  I pointed out that people have been predicting hyperinflation for 20 years, and it never happens because of plummeting velocity of money that economists are too stupid to understand.  I pointed him to the St Louis Fed graph that I set up several years ago on the St Louis Fed web site:

https://fred.stlouisfed.org/graph/?category_id=&graph_id=366117

The issue is that it's Macroeconomics 1.01 that inflation is almost impossible while velocity of money is falling, because the inflation rate is proportional to the velocity of money.

You miss the point on velocity of money.  There are only two reason for that: declining demand and excessive money in circulation.  So which is it?  For my money (pun intended) the general lack of business investment is piled on top of huge deficits created by the Orange One and his minions.  No need to invest when the money just stays in your pocket.  That's not important to the Global Supply Chain (GSC).

Now what happens if the GSC is disrupted?  It's not a financial instrument or the product of one for that matter.  It operates on supply and demand, just like the economy used to before financializaton.  What happens if finished goods become hard-to-get?  After all, the GSC tends to be intermediate goods, as a whole, and when the lack of widgets to build things dries up, demand will pressure those finished goods suppliers to find new sources, and bid up the price of what's still there.

I don't think we know how messy that will be, unless it actually happens.  We've never had the GSC so dispersed and tied to just-in-time delivery.  Everey crsis is new, and "unexpected" until it happens.