https://fred.stlouisfed.org/series/M1
In: Economics
The velocity of money is how much money changes hands.
The velocity of money collapsed when the lockdowns started happening last year: https://fred.stlouisfed.org/series/M2V
This meant that people stopped buying and selling a lot of things.
In order to compensate for this, the Fed and ECB started engaging in quantitative easing, which increased the amount of money in circulation.
The increase in money supply caused inflation, which countered the deflationary pressure caused by covid.
Deflation is bad because it means that people are better off not spending money than spending, so they reduce spending, which causes recessions to get worse. Because money is now worth more than things, staff have their pay reduced in nominal terms or they are fired. Debts are measured in nominal terms, but money is worth more, so a bigger and bigger portion of peoples’ income has to go to paying debts.
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