/biz/ - Business & Finance

>>49529736
>>49529269
2. Reducing the velocity of money

Velocity is basically how often one dollar bill (or digital dollar) changes hands in a certain timeframe. Inflation does not happen if money is not spent (does not change hands). If people just keep the money in the bank, it never shows up on the demand/supply equation. Inflation happens by money printing because your economy produces the same amount of goods and a now larger amount of dollars is competing for that same amount of goods. Inflation does not happen if the rate of printing is lower than the rate of production growth. When you lock down the economy, you don’t have to rely on people just saving their money, they simply CANNOT spend it, keeping it out of circulation and inflation under the hood. Since the lockdown keeps many companies from generating revenue at all though, you need to prop up those companies even more, using printed money aswell, leading us back to paint 1. This is the reason the FED suddenly started corporate bonds. That is simply because the optics of “saving companies” are way better than the optics of “we print billions into the hands to cover the defaults they face and effectively bail them out like in 2008, but with WAY larger sums.

Now that the lockdowns are over, velocity is (only slightly) up again, and we already see massive inflation.