Tuesday, November 17, 2020

16/11/20: Velocity of Money and the Glaciers of Complacency

Last time I looked at the velocity of money, things were going South fast: https://trueeconomics.blogspot.com/2020/05/27520-falling-velocity-of-money.html. And considering thee data through 3Q 2020, there is little improvement across the board:

You can barely notice 3Q 2020 uptick from the pandemic lows in all three measures, thee M1, M2 and MZM. And here are differentials:

Precautionary savings motives (blue line) remain extremely elevated, while investors' willingness to trade assets (in a bull market, a sign of more active management of portfolios) stays stubbornly low. Which implies that the shift from the pandemic impact to the recovery did not do much to alter demand for money, nor to break away from the monetary policy-supported glut of liquidity available to the economy as a whole and to the financial markets specifically. 

It is all as if we have frozen, from monetary policy point of view, in a singular tidal wave. A glacier of households' unease and investment markets complacency. 

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