Money Velocity at 47 Year Low

The Federal Reserve has done everything it can to stimulate the economy, pouring billions of “liquidity” into the market. Like a junkie looking for one more fix the Fed has been supplying the dope for America and the federal government to get high, the housing boom, and now to dull the pain of our economic collapse. And like the junkie who needs a bigger and bigger fix to get high, eventually the drug loses its potency and/or kills the junkie. And that is where we are at today.

Last time there was this much cash sitting around was 1964, prior to the escalation of the Vietnam War

We are going to have a “mini boom” in the coming months as Europe implodes and billions move from Europe to America, but the underlying economic conditions here are just as volatile or worse. We may be following Europe into the debt abyss in, at best, five years. Most think by the fall 2012 all but the dullest among us will see the enormity of our money/government bubble bursting before our eyes. Economic catastrophes generally take 3 to 5 years to fully reveal themselves.
Fall 2008, 2009, 2010, 2011, 2012…
For those sleeping in economics here is the quick definition of the money velocity;
“The velocity of money (also called velocity of circulation) is the average frequency with which a unit of money is spent in a specific period of time. Velocity has to do with the amount of economic activity associated with a given money supply. When the period is understood, the velocity may be presented as a pure number; otherwise it should be given as a pure number over time. In the equation of exchange, velocity of money is one of the variables claimed to determine inflation.”
What this means is the Fed is pumping billions into Wall Street and nobody is spending. The money is sitting idle, like gasoline in storage, waiting, waiting, waiting, to be spent. When that day comes the potential for inflation rates of 38% from years of zero percent interest rates is all but certain. This is the game plan of the politicians. Inflate the debt away. 15 trillion minus 10% inflation lowers the debt to $13.5 trillion without one tax hike. 38% works even faster to absolve the federal government of its debt obligation.
For the American public this would be a tax hike of 38% with no representation. Washington could care less as long as the bureaucrats are paid and congress continues to get rich. Business as usual for the masters. Bad times for the peasants.
So while the propaganda reads that inflation cooled from 3.9% to 3.6%, and the GDP is a positive 2.5%, the underlying fundamentals have not changed. We are catching a break as Europe falls down. Enjoy it this holiday season.