Recession: Velocity Of Money Slow Down May Point To It

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That we may be headed to another recession is seen in the widely available data about the velocity of money in the American Economy.

Now, if you go back to Economics 101, or use the Federal Reserve definition, the Velocity of Money is “a ratio of nominal GDP to a measure of the money supply (M1 or M2). It can be thought of as the rate of turnover in the money supply – that is, the number of times one dollar is used to purchase final goods and services included in GDP.”

If you look at the data sets in the link, the overall Velocity Of Money has slowed in 2011, and for the first time since the first quarter of 2009. After that point, and starting in the third quarter of 2009, it increased. The Economic Stimulus, the Feds efforts to keep money flowing via low interest rates, and unemployment insurance, all contributed to the increase in the velocity of money.

But now there has been no other Economic Stimulus program and the one the President fashioned wasn’t large enough – it was short by $300 billion. Add to that a lack of clinical understanding of economics within Washington and in the country because of the Tea Party Movement, and you have the position we’re in today.

If you want to understand how our macroeconomic works overall, go to my video on this here:

Bank Loans Must Increase

One way out of this problem is through the Small Business Administration loan program. It helps make it more likely that a business owner can get a loan from a bank. The SBA has programs like “The Intermediary Lending Pilot Program,” but it’s just for 20 community organizations. It needs to be expanded to 200 community organizations around the country, to have better impact. Here’s the program description:

The Small Business Jobs Act of 2010 (Section 1131) established a three year pilot program to provide direct loans to eligible non-profit intermediaries for the purpose of making small business loans of up to $200,000. SBA is seeking experienced intermediaries to assist small business concerns in areas suffering from a lack of credit due to poor economic conditions or changes in the financial market. SBA’s Intermediary Lending Pilot (ILP) Program aims to help business owners start and grow successful enterprises.

This program needs a national marketing campaign, and to be expanded by 10 times its current size. It’s the perfect program to help people and businesses get the jobs and fiscal assistance they need, by helping banks in making loans to American businesses.

That will stop the possibility of a recession.

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