The following graph, which illustrates the velocity of money, perfectly encapsulates why QE and ZIRP (zero interest rate policy) has utterly failed to delivered any benefits to the US economy.
The velocity of money is best explained as being the rate at which money circulates, changes hands, or turns over in an economy in a given period of time. The higher the velocity the greater the number of transactions used by the same quantity of money and therfore the great the demand is for that money.
We can see from the chart that essentially since the 2008 crisis the velocity of money has fallen to their lowest levels for the period of time under investigation, in this graph, which from 1960 to the present day.
What we need to place in context is the QE was apparently supposed to stimulate economic growth, on main street, which should have been reflected in this graph and clearly is not. We can deduce two main observations from this chart.
- QE was only ever intended to prop up failing banks and to artifically inflate stockmarkets which we have clearly seen to be the case.
QE continues to kill capital, is not stimulus at all and is systematically destroying the real US economy despite the overtures being made that all is well and the recovery is underway.
We will continue discussing other points, in the future, relating to the US economy to illustrate the reality rather than the fiction which is being peddled.