Money Stock goes Hyperbolic

Paper money [currency] eventually returns to its intrinsic value … ZERO ~ Voltaire (1729)


M1 is the money supply of currency in circulation (notes and coins, traveler’s checks [non-bank issuers], demand deposits, and checkable deposits).

In the wake of the global pandemic, which has led to the coronavirus fiscal stimulus, the US economy is contracting at a rate not seen since the Great Depression of the 1930s since the first quarter of 2020. In just six weeks, a total of 30 million Americans filed for unemployment claims.

The United States Federal Reserve amidst this, printed trillions of dollars to soften the blow of the coronavirus lockdown on the economy. However, it wasn’t just the United States Federal government, and there were several major financial institutions ignited their money printer to print a coronavirus, causing a crash in their economies. And this money availability has boosted the value of stocks this month.

However, even with all money printed at the most rapid rate, that effort could not keep the majority of the masses from losing their jobs or the restoration of lost production.

This implies that although the money supply is on the rise, the availability of commodities is declining. Bruce Ng and Juan Villaverde of Weiss Crypto Ratings reported, the authors contend that this enormous amount of availability of Coronavirus fiscal stimulus has become simpler than ever at a time when purchasing crypto.

Additionally, while the economy is getting quantitative easing, bitcoin is planning for quantitative hardening in fewer than 10 days.

What is more concerning is that while the Money Supply is sharply increasing, Money Velocity is decreasing. Money Velocity is the frequency at which one unit of currency is used to purchase domestically- produced goods and services within a given time period. In other words, it is the number of times one dollar is spent to buy goods and services per unit of time. If the velocity of money is increasing, then more transactions are occurring between individuals in an economy.

This means that even though a large amount of liquidity has been added to the system the number of transactions is declining which present an ominous future for fiat currency.  A decreasing velocity of M1 might indicate fewer short- term consumption transactions are taking place. We can think of shorter- term transactions as consumption we might make on an everyday basis.

Money Velocity hit an all-time high in Q4 of 2007 at 10.678, since then Money Velocity has been significantly decreasing the past 13 years. In the first quarter of 2020 Money Velocity hit a new low of 5.273. This is over a 50% decrease in monetary transaction.

Now, we need to figure out why this occurring, it would be a logical statement that global consumers have more choices to services and products than ever which would leave you to believe that monetary transactions would be increasing, yet it is the exact opposite.

What was introduced in 2008 at the height of the financial crisis? Bitcoin.  A new digital currency that is radically different from the current monetary system.

Bitcoin Transactions

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By |2020-05-04T16:07:14-04:00May 4th, 2020|Categories: Analysis, Global Markets|Tags: |0 Comments

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