Glancing At Inflation? Cool Checks That Lead To Recovery

By Greg Folley

Even if the government pumps money into the economy, an inflated economy cannot take off if the velocity of money is also dormant. ''Velocity of money'' is the rate whereby a dollar is spent over a certain period of time.

If the velocity of money is at a gridlocks there is nothing to inflate. Even if a given stock market annihilates trillions of dollars as the stock market collapses and misguided government printing money to finance all the politicians ill-conceived paybacks to lobbyist, nothing inflationary will happen until the velocity of money accelerates.

The wacky Keynesian economic theory holds that one can "stimulate" the economy by deficit spending. Leveraging or stimulating the economy cannot work if the stimulus is via debt. You cannot spend your way out of IOU arrears by borrowing more money. This type of risk profile begins to look like a gigantic Ponzi game plan with the American taxpayer on the hook.

The velocity of money situation is not repaired by printing money. People will only hold on to their savings and not buying as much because they are concerned. When they are shaken, people generally become more conservative in their buying habits until their fears evaporate.

Money is a touchstone of exchange arising out of people's savings. In an economy based on bartering, it would be impossible to exchange unequal items without an exchange touchstone. So, the government created a stable supply of money. If the velocity of money was stagnant and the supply of money enlarged, inflation would bring it into balance.

Because the government has created a debt crisis, until it is paid down, most economists conclude that confidence will wane. Even in the deflationary environment and economic crisis, the bottom will be reached. Eventually the velocity of money will improve and the economy will flow along more normally.

For the time being, the government has greatly inflated the amount of money it generates. When the economy eventually takes off and the velocity of money improves, so inflation will also. As consumer confidence grows and all the extra printed money follows after a set number of services and goods, inflation will surge correspondingly.

So, the question is: when will you realize that confidence and money velocity increases are taking place? Read the Wall Street Journal and alternative newspapers and sources known for their financial sections and check the Consumer Confidence Index's numbers. These numbers are known as ''leading indicators'' and reveal economic trends well before they are observed by hard data.

The other foremost economic guides that show change before the economy changes are: Gross Domestic Product (GDP) reports, Consumer Price Index (CPI) reports, the Producer Price Index (PPI), Employment Indicators, Retail Sales Index, the National Association of Purchasing Management Index (NAPM), the Consumer Confidence Index, Curable Goods Order report, Employment Cost Index (ECI) and the Productivity Report which measures calculated how much production is created by a unit of labor. Presented by Cool Checks - 23159

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