Illusion of Prosperity blog had an interesting post about GDP/M2 and how that measure dropped sharply after 2008 and fell off a cliff in 2020. It is far outside the bounds of what we have seen since 1960. That got me thinking about the velocity of money. The Illusion chart almost matches the M2 chart. The narratives in finance land have recently swung toward higher inflation expectations. You can see the effect of that swing in rising interest rates on the longer end of the curve. The textbooks say there are two types of inflation, cost-push and demand-pull. But, prices can't change without money being spent. Cash in a bank or brokerage account is inert, in an indeterminate state until it's wave function collapses when it is spent. It's Schrödinger's Cash! So far, I'd say that velocity is a drag on inflation. It may all change as the pandemic is brought under control and the stimulus money starts flowing.
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