Here is an interesting concept. Take GDP and divided it by M2. The result? A metric economists call the velocity of money:
The idea behind this metric is that you take the output for an economy and compare it to all the money in the economy. This gives a multiplier for an economy’s money stock. The higher the multiplier, the faster that money is moving around and being used.
The velocity of money is said to rise during periods of economic growth and inflation. Obviously, the relationship isn’t a perfect one because the velocity of money has fallen since the end of the 2007-2009 recession.
And now, the ratio is falling like crazy. With a huge print of new M2 into an economy that is in an economic free fall, this ratio is going to plummet.
It’s definitely concerning. Money gets made but doesn’t get spent around quickly - it feels almost like the lifeblood of the economy is drying up. But, at the end of the day, this is just one metric and not something to lose sleep over. Maybe, as they tend to say, this time is different?