P = (M)(V) / Y
Where M is the money supply, V velocity of money, P price level and Y real GDP
- Considering that the current rate of M2 is increasing at 7% per year over the last 12 months, and real GDP is now forecasted to decelerate from 1.9%/year to maybe as low as .4% by the end of Q4 2019, (according to the Atlanta Fed), am I correct to assume, going forward, that even the slightest sustained increase in (V) would rocket inflation from our current 1.7% per year to something resembling an inflation rate of over 7% in the very near future?
My primary question is this: what event(s) or scenerio(s) can you think of that would cause the velocity of money (V) to start increasing / accelerating again; or at the very least, stop falling like it has over the last 9 years?
Would V be expected to increase as a result of a mass exiting of the stock market (frigtened stock market investors liquidating their retirement holdings into cash and then spending it)?
For instance, the stock market starts falling and worried baby boomers start cashing out their retirement accounts and then start spending it on things like medical care, prescription drugs, on retirement housing, vacations, RVs, ect?
Or maybe baby boomers start dying and their children start taking the inheritance money and spending it all on consumer goods; buying sports cars, electronics, vacations, boats, ect?