M2 Money Velocity Plunges Most Since 1959

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Pimco’s Bill Gross tweeted yesterday that the Fed is contemplating an announcement next month of QE3. He cites no source or evidence other than the assertion that the Fed will be forced to keep buying bonds that no one else wants. The VIX plunged yesterday perhaps on similar rumors. This would likely prove highly incendiary of already inflated oil prices and particularly controversial announced within months of the next US Presidential election. Many, including UK Telegraph’s Ambrose Evans-Pritchard, have argued the Fed cannot roll out more QE this year for these very reasons.  See: Global liquidity peak spells trouble for late 2012.

But as the Eurozone moves deeper into recession and Chinese exports plummet, perhaps this next chart is the fire under the Fed. US money supply, both M1 and M2 have flattened so far this year, even contracted slightly in recent weeks, while velocity has plunged, with the M2 gauge dropping below 1.6 last week for the first time since records began in 1959 as shown in the chart from the Federal Reserve Bank of St Louis below. The manic swings of the dying credit bubble continue to plague and haunt the global economy.

money supply m2

Source: Juggling Dynamite

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