I've read through questions like: Implications of declining money velocity and noticed this trend has intensified since, with velocity printing the lowest readings in history in the past few months. Currently, velocity stands at 1.13.
From what I gather, the mainstream interpretation is that the low velocity levels are a result of monetary stimulus making its way into M2. The expanded balance sheet of the Fed was mainly aimed at stabilizing financial markets rather than the real economy. With interest rates near/at zero, cash replaces short-dated bonds as the preferred risk-free liquid asset. In this sense, velocity reflects growing demand to hold cash versus use it for transactions in the real economy.
I haven't found any literature on sub-unity velocity, so I'm left wondering if there is some sort of singularity that cannot be crossed without violating a sacred economic theorem. However, given that:
$$ V = GDP/M2 $$
It would seem that there is nothing in the laws of physics (indeed, nor economics) that would serve as a fool -proof guarantee that GDP must exceed money supply. Surely with Weimar Germany and other hyperinflationary episodes, the ratio slipped into sub-unity territory. I concede it may be an extreme scenario for much of the developed world, but in the face of supply chain disruption and quarantine measures, it merits a thought experiment.
Hypothetically, if the US was to fall into sub-unity velocity, would there be a clear interpretation and how much significance would the act of crossing below one have? Optionally, what if
V was negative?
(I realize not everything can be taken to the extreme in econ. As an example, take negative prices. Instead of customers paying firms for goods, they would pay firms not to produce. Or whatever the case, the interpretation of negative prices isn't clear.)