Velocity of money is
the frequency with which a unit of money is spent on new goods and
services. It is a far better indicator of economic activity than GDP,
consumer prices, the stock market, or sales. In a healthy economy, the same dollar is
collected as payment and subsequently spent many times over. In a
depression, the velocity of money goes catatonic.
Velocity of money is
calculated by simply dividing GDP by a given money supply. The following is the velocity of money since Great Depression, sometimes a picture is worth more than thousand words and the picture is quite clear here.
The situation here is worst than the Great Depression and World War II and deteriorating fast.
