Money Velocity: Historic Upturn Nears

“The Federal Reserve and other central banks have piled up huge reserves. But there is no inflation because the money is sitting within the banks and they are not lending it. Therefore, you don’t get a multiplier effect.” -Pierre Lassonde, gold expert, interviewed by Finanz and Wirtschaft News, October 2017.

Because the world’s major central banks have moved so slowly to transition from QE and rates near zero to QT and higher rates, the huge bear markets in money velocity in Western countries have not ended.

Most Western gold bugs are more focused on gold stocks than bullion, and are eagerly awaiting a turn in money velocity that will usher in a new and lasting era of inflation.

The bad news is that Janet Yellen initially lied about the pace of rate hikes.  She has moved vastly slower than promised, and that’s kept money velocity (and gold stocks) in the “dumpster”.

The good news is that the US central bank finally appears ready to increase the number of rate hikes per year.  The plan is for three in 2018 and perhaps four in 2019. 

It’s possible that she is lying again, but I don’t think so, mainly because of progress China is making with OBOR (The gargantuan “One Belt One Road” infrastructure program).

There are rumors that Janet Yellen cut a secret deal with the Chinese government behind the back of her own Fed governors when she started hiking rates. 

According to the rumor, she agreed to cut the pace of hikes because China was struggling with long term downside manipulation of its stock market and with a very slow start to its OBOR program. She then ordered the Fed governors to agree to a slow path of rate hikes until getting the green light from China.

I don’t know if the rumor is true or not, but I do know that OBOR is the largest infrastructure spending program in the history of the world. It makes Roosevelt’s “New Deal” look like a microscopic peanut play, and it is… inflationary.

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