The Fed is flooding world markets with excessive liquidity, but the turnover of money (velocity) has collapsed, indicating a frightening level of concern. Velocity today sits at 1.59, well below the average of 1.79 since 1959. Velocity is calculated by dividing nominal GDP by money supply as measured by M2. With slow GDP growth, and rapid expansion of M2 spurred on by the Federal Reserve’s loose monetary policies, the velocity formula (GDP/M2) has resulted in smaller values. Slow money turnover is a sign of an anemic economy. Today’s levels are the lowest ever recorded.
