The Fed Veloci(ty)raptors: Money Velocity (M1, M2) Measures Are Still Historically Abysmal (Poor Bang For The Buck)

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by confoundedinterest17

Yesterday’s GDP report was great with real GDP growing at a 6.4% annualized pace.

To get 6.4% annualized GDP growth, The Federal Reserve had to print a massive amount of money. Even with a great GDP report (preliminary), M1 money velocity is at a historic low. In other words, the US economy got relatively little for all the money it is printing.

Things improved if we look at the broader definition of money, M2. Again, despite the excellent real GDP report, M2 velocity for Q1 actually declined since The Fed went ballistic printing money. Again, the bang for the buck, so to speak, is near the historic low.

Today’s release of personal income and spending shows that personal consumption expenditure (PCE) rose 28.5% YoY in April. Zowie!!

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And the PCE PRICE index grew at 3.58% YoY, the highest since 2008.

The good news is that The Fed is slowing its M2 growth rate YoY. We shall see if Q2 GDP growth slows as well.

Then we have this chart showing the massive expansion of The Fed’s balance sheet and the near-zero Fed Funds effective rate. Fuel for the Veloci(ty)raptors! We will discuss the relationship between bank reserves and money supply when summer class begins on June 21st.

Another troubling chart is average hourly earnings of all employees, year-over-year. That is 0.3% in April and is not a great signal for Q2 GDP.

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Then we have CPI growth (aka, inflation) growing at 4.2% YoY, the highest since 2008 and The Great Recession.

We shall see if President Biden’s $6 trillion budget 1) gets through Congress and 2) whether the money passes through to workers.

Lastly, I want to reiterate the decline in purchasing power of the consumer dollar since the creation of The Federal Reserve in December 1913 when the dollar had a base index of $994.2. The index is now at $37.4. That is a 96% loss of consumer purchasing power since The Fed’s creation.

Yes, The Fed’s veloci(ty)raptors are hard at work destroying the US Dollar.

 

 

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