More Food For Thought – The Velocity of Money – M2

Below is a chart of the velocity of the money supply (M2) in the United States.  If you think this recovery feels pretty lethargic you can see by this chart what the problem seems to be. The Velocity is now around 1.5–this is the lowest in the last 50 years and it is continuing to drop even as the so called ‘recovery’ has been taking place since the recession of 2009.  How low can it go?

M2 is the measurement of the Money Supply in the U.S.–including cash, checking accounts, savings, CD’s, money market accounts and items that can be converted to cash quickly.

The Velocity of Money is just what it implies–the turnover of money–how many times in a year is a dollar spent. Generally some what quicker is better–at least to a point.

Source:Federal Reserve Bank of St Louis