The Federal Reserve measures the rate at which money circulates around the economy as it spent, re-spent, etc. This is the “velocity of circulation of money.” As we see in this chart from the Fed, this plunged from 1929 until a recovery after WWII. It rose steadily until 1975, a period of great economic expansion. A good number seems to be around 15.5 (dotted line).
But inflation may creep in if it gets much higher, as it did around 1975. We see a reversal in 1981, thanks to Democrat Paul Volcker who ran the Federal Reserve from 1979. Velocity rose briefly during the housing bubble, then fell after the 2008 crash to around 4.0 in 2015. This is the lowest in history. Why?
Today’s miserable velocity of circulation of money stems from Reaganomics, the destructive economic policies advocated by President Ronald Reagan. George Bush Senior accurately called them “voodoo economics.” America’s money circulates far too slowly because far too much of it has been transferred upward to the super-wealthy and stashed under the mattress. It does not generate extra wealth that “trickles down” like a “rising tide” that “lifts all boats.” Its inaction shows up in the velocity numbers.
The 2008 crash obviously crimped spending. The Feds flooded the economy with money in an effort to stimulate spending. And President Barack Obama’s stimulus package pulled the economy out of the 2008 crash. But these actions could not make the ravages of voodoo economics magically vanish. As a direct result, corporate profits are the highest and wages are the lowest in history. This is bad news for spending and economic growth.
Money is like manure. It works best when spread around. Nowadays it piles up uselessly. And our manure expert President Donald Trump has piled it up even higher. It will produce even more economic voodoo purely to make super-rich Republican Party donors even richer … at the expense of the lower classes … many of whom vote Republican.
If you do not know whether to laugh or cry — cry, very hard. It is your country that the GOP, their wealthy donors and their clueless voters are wrecking.