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by swixi 1957 days ago
> Money in band account that is not used is just a number. As Fed puts more money into the economy, the velocity of money decreases as the money is used less. https://fred.stlouisfed.org/series/M2V

A couple questions because I don't understand this very well.

Do we have an idea how much is actually sitting in a bank account vs being put into the market?

And, if people put money into stocks and park it there, wouldn't the velocity still be much lower than it usually is (when people are spending more on goods and services)? My interpretation of what's being shown here is that a large amount of newly "printed" money has gone into the stock market, thereby inflating asset prices. I don't see how low velocity refutes that.
1 comments
ItsMonkk 1957 days ago
You can't just put it into the market. There are two sides to every transaction. You give money, they give stock, they get money, you get stock.

When more money enters the economy than stuff is created, the price that the person willing to sell/price you are willing to buy that stock for goes up.

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jkhdigital 1957 days ago
Thank you for saying this, because it is incredibly easy to overlook.

However, we must also remember that dollars are effectively debt—banks create them by loaning money. So while it is true that dollars cannot be “parked” in assets since there are two sides to every transaction, if the seller goes on to pay down debt with the proceeds then the money in circulation will decrease.

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epr 1957 days ago
> However, we must also remember that dollars are effectively debt

They are debt in the most literal sense possible. They are listed as liabilities in the fed's balance sheet. The "note" in "Federal Reserve Note" written on every dollar bill is referring to the legal definition. It's a promise to pay.

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swixi 1956 days ago
That's a good point about transactions. But are stock purchases included in the velocity calculation? From what I can find [1,2], money velocity is a ratio of nominal GDP to (either M1 or M2) money supply, and neither of these includes stocks or bonds.

[1] https://fred.stlouisfed.org/categories/32242 [2] https://www.newyorkfed.org/aboutthefed/fedpoint/fed49.html

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