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This graph tracks what is sometimes referred to as the velocity of money. It is an indicator of the number of exchanges for money per unit of time. A dramatic increase or decrease in this statistic is rare. People stick to their budgets pretty closely. Bills get paid monthly. Expenditures reflect closely people's monthly incomes.
Ever since the September 2008 financial crisis, this statistic has fallen as never before. It looks as though it went over a cliff.
Why? It was not that people stopped spending. Bills must be paid. Companies still meet their payrolls. The basics get taken care of.
What happened is that banks stopped lending. Bankers looked at the financial markets, and they abandoned faith in Alfred E. Newman.
What happened is that banks stopped lending.
Before I go on and read the rest of the latest news from Gary North (my favorite Austrian Economist), my intention is to communicate two things about money.
Velocity is very important in any power circuit, such as a hydraulic circuit, an electrical circuit, and an economic circuit. Velocity measures the vital factor of time and without that vital factor of time the measure of power is meaningless as power.
Example:
Two things are next to each other. One thing is 1 hundred times more powerful than the other thing. Both things are seen this way without any measure of time.
A. Power is 1
B. Power is 100
The obvious meaning of that observation of power (without time) is that B is more powerful than A.
Now add time.
Power A is 1 for every second in time and Power B is 1 for every year in time.
Now see how the meaning of time changes the observation of power. Which is more powerful A (1) or B (100); when A is 1 per second and B is one per year?
Velocity or time factored into hydraulics can be seen as the difference between filling up a bucket of water with a small hose or a big hose. Hose A is 1 pound per square inch pressure power hose, where a small pump is pumping a little bit of pressure to fill up the bucket. Hose B has 100 pounds per square inch of pressure pushing the water out, so hose B has a very powerful pump that is pumping water through the hose, to fill up the bucket.
If pump A is pumping out 100 gallons per minute at 1 pound per square inch pressure it is a high velocity hose, lots of water flowing in a short amount of time.
If pump B is pumping out 1 gallon per year, even though it has a lot more power at the pump, at 100 pounds per square inch, the velocity is negligible, the bucket takes a year to fill up.
The obvious difference in that bucket filling power illustration is hose size. Hose A, with 1 pound per square inch pressure (low power pump), could be a very large hose, like a fire hose. Hose B could be a very tiny hose, even with its powerful pump, the water cannot flow past the restriction of the small hose, not fast, not a lot of water in a little time.
Electricity is also time dependent, for similar reasons, the resistance to the flow of electric current causes a reduction in the flow of current, or causes a need for more power to push current through the resistance. A very large electric generator may not move as much current as a lower powered generator when the large powered electric generator is pushing current through a very large resistance, compared to a small and less powerful generator pushing current easily past a miniscule resistance.
Time in economy can now be seen as a similar relationship as the power behind the economy is identified, and the resistance that cause the economy to slow down is measurable with velocity.
Gary North points out the resistance, the control, and the governing power that causes the economic to slow down, where buckets of water are no longer filled up as fast, since that power to govern the velocity of water, by restricting the flow of water down to a very small hole, causes the compete waste of power, as power is expended in the work required to overcome the resistance.
How is that seen in reality?
Return to Gary North's statement first:
The Banks Stopped Lending
How is that seen in reality?
I can show two examples.
The first example is from Tesla Motors as that electric car manufacturer expending power toward the production of a new all electric Sedan, just like filling up a bucket of water, only the power fills up garages around the world with electric cars that can run on Solar Power made at home.
See that?
If money is allowed to flow to Tesla motors, then cars end up driving around on roads, everywhere, and those cars can be fueled up by the Sun Power.
If money is not allowed to flow to Tesla motors, then cars are not made by Tesla motors and gasoline fuels gasoline powered cars on roads everywhere instead.
Example two is a venture like filling up a bucket where the idea was to farm at home with Modular Vertical Green House Farming Units. Filling up those buckets of water would end up populating the world with home grown foods everywhere around the globe. If money flows to that producer, the end result is more and more people growing their own food at home, or their own gasoline grown at home, since that business also figured out how to turn Algae into a bio-fuel as good as gasoline.
There are two, and only two of many, examples of how money (purchasing power) can flow in time (faster or slower) to economic empty buckets and those buckets can be filled with economic water, not water in those two cases, the empty economic buckets will be filled with more and more electric cars, more and more home farms, and the obvious third bucket to be filled would be more and more solar panels.
The Banks Stopped Lending
Now is as good a time as any to interrupt this (my) version of MONETARY CRANKISM to point out an obvious problem with that statement above. The Banks did not stop lending to everyone. The Banks did not stop lending to the people who the Banks wanted to remain powerful. The Banks kept the flow of water to fill up, and overflow their favorite buckets. While Tesla is dying of thirst, the water flow goes somewhere, and it goes somewhere fast, with great velocity, because the power to govern the flow of money is a criminal enterprise.
The power to create power is not, and this is very important, the power to create power is not in the hands of the criminal enterprise. The power to create power is in the hands of people like Elon Musk of Tesla motors. So the effect of governing the flow of money away from Tesla motors merely changes the cost of making those electric cars. Now Tesla motors must expend more power on acquiring more money. The cost of making each electric car goes up, because more power is expended in the work of financing.
What would happen if Elon Musk were to collect money from potential customers with a down payment option, where the customer can pay 5,000 dollars up front for a car that is not made yet? Elon Musk is then expending power in the process of becoming a banking business. How is that any different than Elon Musk expending power becoming a farmer so as to pay his employees with food? There is no difference in principle. The principle here is that the Banking Business is a criminal operation and as such the cost of dealing with that criminal operation is greater than the cost of creating an alternative (finding a way around the resistance imposed by the criminals).
The Banks Stopped Lending
The power to stop the flow of power to competitive economic powers is abused in exactly the way I've just described. The power to cause a restriction in the flow of power to the competition and at the same time the power to open the flow of power to favored "insiders" is accomplished in time. This is happening right now.
The legal tender banks stop lending to their victims. Please understand that the competition does not stop lending. The power to govern the flow of legal money is only as powerful as the victims allow it to be, because the victims create the economic power that the criminals control.
See how that works, because that understanding illuminates the solution. There isn't any need to starve out the criminals when the solution is merely to ignore them. The solution is to borrow money from the competition, or create your own money at home, to bypass the resistance imposed by the legal criminals, to find a way around that imposition, and then use that alternative source of purchasing power.
Last edited on Sat Jun 13th, 2009 12:43 pm by Joe Kelley