Slower Spending is Avoiding Inflation

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Globally, there has been a lot of money printed to fight COVID and stimulate economies. The total US currency in circulation soared to $2.07 trillion by the end of 2020, according to Federal Reserve data. This was 11.6% gain from 2019 and was the biggest one-year percentage increase since 1945, as the nation was coming out of the war and the military-industrial complex took hold. There is about $7 trillion in the base money supply.

The velocity of money is the frequency at which one unit of currency is used to purchase domestically- produced goods and services within a given time period. In other words, it is the number of times one dollar is spent to buy goods and services per unit of time. If the velocity of money is increasing, then more transactions are occurring between individuals in an economy.

SOURCES – One Minute Economics, Alternative Money & Crypto Clips, St Louis Fed
Written by Brian Wang, Nextbigfuture.com

10 thoughts on “Slower Spending is Avoiding Inflation”

  1. I think since we use fiat (faith based) money the old economic rules wont apply. If the government issues more money inflation will occur because monies value has declined. When the costs go up it takes more money for the same product so the cycle of money declines and more people have less. The trick is to fix essential costs housing ,food, etc. for people and provide a living wage. Once that's done value can be added to the currency, taxes and the cost of goods will be reduced. Think of it as trickle up.

  2. This year has really become completely different. For the economies of different countries, inflation has affected people's lives. They have transferred their business and money online. I work for a company that started using the app called Fieldwork (https://fieldworkhq.com/). Simply put, a system for online payment, reporting immediately at the facility to avoid contact between people.

  3. To manipulate that equation to answer Hobbles' question exactly.
    MV=PY (note: this is not theory, this is the definition of the terms).

    therefore: P = V x (M/Y)

    therefore, if the amount of cash and similar in the economy stays the same (M) and the amount of goods and services produced in a given time stays the same (Y)
    then if V goes up, then P must also go up the same amount.

    Though, in this case, everything changed.
    M has been drastically increased by governments pouring money into the economies.
    Y has gone way down, because most people have not been working as usual
    V has apparently slowed, as stated in the article.

    therefore Prices will do…. who can say. It's a delicate balance.

  4. My grocery bill is definitely up, and it is not merely that I eat out less. On the other hand, some of my tenants have flat out told me that if I raise their rent again they will stop payment and force me to evict them. One of these was once a good tenant who had paid on time since they moved in. I think the pandemic has made some people feel spoiled and that they no longer have to pay their bills if they don't want to.

  5. With regards to real estate, prices are very uneven. For example, prices in Florida are up but prices in New York are down. The two cancel each other out at the national level.

  8. The quantity theory of money:

    MV=PY where
    M= the monetary base (think cash and cash equivalents)
    V= the velocity of money
    P= the price level
    Y= real GDP (actual goods and services produced)

  9. Maybe. Don't know about you, but I'm seeing prices rising all over the place – real estate, groceries, restaurants, etc. They must work really hard at not reflecting rising cost of living in their inflation numbers…

  10. This article didn’t explain much. Would be nice to have an explanation about how the velocity of money relates to inflation

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