Money Velocity Shows Government Cannot Sustain Economy Forever
Looking at the official data, Economy Completely recovered from the shutdown. Gross domestic product (GDP), a general indicator of economic recovery, has reached an all-time high.
Looking a little further, the question is whether the recovery is sustainable. The graph below shows that the economy would be sluggish without government support.
GDP without government support shows the problem of the speed of money flow
Speed suggests serious economic contraction
The blue line on the graph represents declared GDP. The red line represents GDP less government remittances.
Government remittances predefined as “payments that are not currently in use and are part of personal income”.
Fund payments include social security severance pay and disability benefits, unemployment benefits and other severance pay and other payments.
There are always payments for government remittances that move the economy. Attractive payments and extended unemployment benefits dramatically increased the amount of transfer payments.
When remittances are taken out of GDP, data shows a shrinking economy in the last quarter. This decline also occurred when recent stimulus payments were imposed on consumers.
The graph above shows that the economy may have recovered through government payments alone.
This simple analysis underestimates the magnitude of the problem. For every dollar spent in the economy, the value of GDP typically increases by more than $ 1. This is called the speed of money.
Speed measures the number of times a dollar of money supply has been spent. Given the speed, the reduction in economic activity without government support is even more serious.
In the future, the economy may be forced to become self-sufficient. The prospects for additional stimuli are poor. Many governors have withdrawn extended unemployment benefits to increase employment.
Without high levels of government transfer payments, growth would depend on the ability of private sector growth to offset the withdrawal of government support. Over time, you will know if this can happen.
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Money Velocity Shows Government Cannot Sustain Economy Forever Source Link Money Velocity Shows Government Cannot Sustain Economy Forever