Get Off My Hair!

Sure, I’ll bet you’re thinking that the velocity of  money refers to how fast it leaves you wallet or bank account, aren’t you?  Well, think again.

We sure hear about ecomonic stimulus packages and bail outs a lot these days, but what we don’t really hear about is how they are expected to effect our economy.  We don’t hear anybody talking about the velocity of money.

Anyone who took business in college had to take economics, so this will be a familiar concept to some.  Basically, it is a measure of the amount of economic activity a dollar generates in a given time frame.  Wikipedia has a great example here showing how $50 can generate $100 of economic activity.  I won’t bore you with economic equations or graphs, which frankly, put me to sleep on more than one occasion during college, but I do encourage you to consider that economic stimulus check you got last year.

Let’s say that check was for $600.  What did you do with it?  Did you put it in your savings account?  If you did, your bank or credit union reinvested it back into the economy in employee wages, loans, capital expenditures, etc.  Did you buy a new television?  If you did, that money was put back into the economy again by paying wages, making capital expenditures, etc.  You get the point here, I’m sure.  One dollar in our economy translates to many dollars of economic activity.

Economics is a complicated subject, and I for one, do not profess to be an expert.  What I do know for sure is that when I hear in the news about all these economic stimulus plans, I know there is a lot more going on there than what that 15 or 30 second news story is telling me.

2009 is going to be a great year.  Sure, it may be tough at times, but we will prosper.