Since 2009, trillions of dollars of global monetary stimulus (central bank activity) has had a marginal effect on the global velocity of money. Today, it looks like only the promise of U.S. fiscal stimulus in the form of tax breaks and infrastructure spending has had the same...or better effect. Velocity refers to how often the money supply is turned over. English? When a dollar is earned, how many times is it spent in a year. Velocity is an indicator of economic activity and is an important component of measuring inflation. As the chart below shows, post 2009, the velocity of money calculated as a ratio “crashed” here in the U.S.
As the chart below indicates, prior to the 2016 U.S. Presidential election (in all but China) the velocity of money calculated as a percent change year over year has increased throughout the globe further bolstering the notion of “reflation.” Will the U.S. be able to reignite global growth?
Source: Nedbank, 2017
M2: A measure of money supply that includes cash and checking deposits. “Near money" in M2 includes savings deposits, money market mutual funds and other time deposits, which are less liquid and not as suitable as exchange mediums but can be quickly converted into cash or checking deposits.
M0: M0 is a measure of the money supply which combines any liquid or cash assets held within a central bank and the amount of physical currency circulating in the economy. In the United Kingdom, the M0 supply is also referred to as narrow money.
The views and opinions expressed throughout this post are those of our Portfolio Manager at the time. The opinions or outlooks may change over time with changing market conditions or other relevant variables.