The Irrelevance of Velocity?

Picking up from Friedman's Velocity? More Nattering on Velocity... In Velocity Of Irrelevancy, Jeffrey Snider posits

"One less mainstream piece of this inflation hysteria boom is the velocity of money. In case you haven't yet heard, monetary velocity is rising. From that we are supposed to infer all the usual - wages, inflation, higher rates, and utter destruction in bonds if not the whole Western economic structure."

And picks a Friedman's equation...

Money velocity is, to put it mildly, bunk. Changes in it are in most cases merely functions of accounting.

Suggesting a decoupling of correlation...

In fact, any correlation between velocity (MZM; M2 just doesn't fit at all) and calculated inflation broke apart substantially in the mid-nineties (no surprise that; RiskMetrics and dark leverage).

And a rational for the current spate of "velocity inflation" mania...

The current (small) rise in velocity is once more simple mathematics. Nominal output is slightly higher over the past few quarters while the Fed's balance sheet, particularly the leftovers in bank reserves, is generally lower since 2014's taper. 

In other words, these calculations for velocity give us no additional information beyond that which we already know from pretty much everything else. Like the M's behind these numbers, they've been obsolete for a very long time. 

And finally a conclusion....

Appealing to money velocity as a basis for inflation expectations in 2018 is another one of those highly desperate over-interpretations that have become quite common.

Take aways? Old views of rising wages leading to inflation do not necessarily hold under present conditions. The linkage of INCOME velocity and inflation has potentially decoupled. Small nominal GDP increases account for corresponding velocity upticks.

Much like Hamilton and Chin, then Wen and Arias, Snider sees the resultant pattern, has grasp of a piece of the puzzle, but for limitations in scope, does not fully address the underlying causes and potential consequence.

More to come in The Real Threat Of Inflation? stay tuned and no flippin.