Whether you’re in the market or holding real estate, there’s a number out there that few people talk about. Yet it’s crucial to knowing how the economy is really doing.
It’s a number that those in power are trying to bury, with their war on cash, because it shines a bright light on economic activity free from all the distortions of the “official” numbers we’re all fed.
It’s called the velocity of money.
It describes, in a snapshot, how quickly money is circulating around the economy.
For example, Ted had $10 and he bought corn from Fred for $10. Fred then bought $10 worth of tomatoes from Ruby. She then bought $10 of sandwiches. The velocity in this instance would be three. The same $10 was “spent” three different times.
Again, this number is more an indicator than it is a driver of economic or financial circumstances, but it illuminates because it’s one of the clearest indicators on how distorted our economy has become since the world’s central banks have stepped and began controlling the global economy.
For all those who think the economy is recovering, robust, improving or whatever the latest is from the talking heads on financial TV and papers, it indicates that the Fed has almost brought the velocity of money in the U.S. to a standstill.
At the end of December, according to the St. Louis Federal Reserve Economic Data (FRED), the velocity is around 1.43.
According to FRED data, this is the lowest velocity of money since 1960. Up until the 1990s, velocity moved in a range of around 1.6 to 1.9. In the ’90s, velocity took off and hit 2.2 and stayed there for almost the entire decade.
That was the tech boom. And the early days of the housing boom when people were refinancing and then going out and spending that money. But once the bubble burst in 2000, velocity has been on a one-way trip to its current record lows.
It’s fairly obvious if you look at the chart that once the economy started to slow and the Fed got increasingly involved, the velocity of money continued to drop.
The fact is, we are living in a world that is being propped up by the Fed expressly for the bankers. The reason why the velocity of money is so low now is precisely because the Fed is handing out free money to the banks and the banks aren’t lending it. They’re sitting on it — free money parked on their balance sheets.
As our friend Bob Livingston has been saying, inflation rates are being manipulated to serve the moneyed elite and cripple the consumer. Here’s a link to his report that talks about the Great Inflation Deception and the inevitable decline of the dollar.
Any money that is coming in to consumers is either servicing debt — paying back money already spent on homes and credit cards, all sent back to the banks — or going toward healthcare and food.
What does this mean?
It means there is no real economy to speak of.
The stalled velocity of money has killed the growth of the middle class in the U.S., which in turn keeps the economy shackled.
Oh, in case you were worried about them, the banks are doing fine; and their most recent numbers prove that.
As an investor, this is why it’s so hard to find good sectors or stocks in the market right now. Because we’re living in an imaginary world. There’s no telling when reality will set in and bring it all to its knees.
By avoiding another Great Depression, we may well have unleashed something much worse, at least for individuals.
This is why you need to diversify your assets away from Wall Street and toward hard assets and stores of lasting value like gold and silver.
As 2017 moves forward, President Trump is going to find out just how much the players in Washington are willing to drag their feet to keep him from getting anything done. We all hope they don’t succeed if they try, but it may be difficult even with the House and Senate on his side.
When the “Trump rally” ends and the U.K.’s Brexit is formalized reality in the markets will set in — and you don’t want to be near stocks. But you will see the price of metals take off.
— GS Early