A few years ago, we had a pretty high velocity of money. That meant, as a nation, we spent our dollars pretty rapidly. We had a lot of financial activity, and it kept our economy scooting along at top speed.
Now, we have low velocity of money. That means we’re not spending like we used to. Our demand is really low, and we’re in a recession.
The USG is going to start printing lots and lots of money. Given our current velocity of money, that will help fend off deflation… if we’re lucky. Once our velocity of money picks up again with an uptick in demand, though, we could be looking at the possibility of almost instantaneous high inflation.
Ouch and ouch, in other words.