On Inflation, M2, and the Velocity of Money
We often hear that the central banks printing money in order to keep the stock market inflated and broke countries afloat for just a few days longer is nothing to worry about. The reason we are given, is that even though the central banks are pumping trillions into the economy, inflation isn't an issue. And after all, the velocity of money has actually declined.
That's the message from the "smart" people anyway.
This chart shows that as M2 grows (Red), so does inflation ie: CPI (Green) - yes, this is the government's calculation, we'll leave it there for this chart's purpose. Also of note is the monetary base without the banking ponzi scheme of fractional reserve banking (Blue).
So as you can see, inflation actually follows M2 growth, even as the velocity of money (below) declines. Don't be fooled by those who tell you that printing money isn't causing inflation, because it is doing just that each and every day.
There are those who believe that velocity of money is a product of fast growing inflation (not a cause). Inflation has been rising consistently with the growth in money supply, but the velocity of money has declined. You can imagine what happens once velocity of money actually starts to turn (hint: something ZH has been warning about for years).