The period after the global financial crisis has been marked by a dramatic increase in central bank balance sheets as they poured liquidity into their financial systems. Their response to the pandemic has been even more aggressive.
Yet while the volume of money circulating within the financial system has increased, its velocity seems to have decreased.
The velocity of money is the frequency with which a unit of currency is used to produce goods and services within a given period of time. In the US, each unit was turning over about 3.5 times every three months back in 1980. That number has been falling steadily ever since to about one last year.
Where the money has ended up is fairly obvious. It has found its way into an ever-expanding…