(Economy) Fiscal Velocity

Kent Dahlgren
6 min readFeb 26, 2021


Imagine you have a $10 bill, which is used to buy lunch from a street vendor. The vendor uses the same $10 to take a taxi ride home, and he uses the same $10 to purchase a few gallons of gas.

Fiscal velocity: over the sample period (one day), that $10 bill created $30 of economic value.

Fiscal velocity is an important indicator of economic health, and in the wake of COVID-19, has slowed to an almost deadly standstill of 1.1 (as defined as price level times the number of transactions divided by the money stock).

If you want insights into why stores need exact change, it’s because of this: the flow of money has slowed nearly to a stop.

Illustrated in my meme are coagulating (clotting) blood cells in the bloodstream, causing purple rashes, swollen legs, clogged catheters and sudden death; blood clots, large and small; a frequent and often deadly complication of COVID-19.

Hypercoagulation (a clotting of the blood, resulting in a slowing of the blood’s velocity) has devastating effects upon the body as the blood is hindered from doing its job (delivering oxygen, carrying away wastes, finding and eliminating infections, etc).

A blood clot in the heart or lungs can cause a heart attack or a pulmonary embolism, a blood clot in the brain can cause a stroke, and a blood clot in the vein to one of your kidneys may cause kidney failure.

It’s convenient to blame the COVID-19 shutdown on the sudden crash of fiscal velocity, but as the chart illustrates, this conclusion is not accurate.

As you can see, the velocity of money has been dropping since about 1997.

A few factors contributed to the slowing of fiscal velocity, including monetary policies designed to tap the brakes on inflation, but what piques my interest in particular is the correlation which exists between a consistent drop of fiscal velocity and income gains among the top 1%.

“What about trickle-down economics? By lowering taxes upon the rich, we freed up more money for innovation and for the economy!”

That claim has been debunked so many times it’s absurd, but in particular in a new paper (London School of Economics) it’s demonstrated that 50 years of “trickle-down economics” has failed.

The rich hoard the money for themselves.

Let’s pivot and talk about household wealth, considering that Mitch McConnell today mysteriously announced that …on a broad national scale, households are sitting on a historic pile of pent-up cash waiting for the economy to reopen,” and his followers are foaming at the mouth about how the liberals are keeping everyone from shopping this country back to the top.

In a recent report from Credit Suisse, total household wealth dropped by $17.5 trillion USD between January and March of 2020.

This part of the Credit Suisse report is pretty interesting, because although the report doesn’t try very hard to delineate “household wealth” for each economic segment, one can discern how the results are skewed in favor of those who have hoarded nearly all resources (the rich):

“From March onward, stock markets have rebounded and house prices have soared, and the data available for Q2 2020 suggests that household wealth is roughly back to the level at the end of last year.”

Clearly, this part of the report (stock market and real estate) is referencing a different side of the economy, because according to the US Census Bureau, “…roughly 18 million Americans are behind on rent or mortgage payments as the coronavirus pandemic continues to ravage the country, causing job losses and other economic stressors,” and “…of those about half will face foreclosure or eviction.”

The report goes on to say:

“Lower economic growth for some time and changes in corporate and consumer behavior will result not only in lost output, but also in redundant facilities as well as sectoral changes that may restrain household wealth accumulation for many years.”

And this is fun, because a couple paragraphs later, the authors of the Credit Suisse report completely erode their own credibility by making the following absurd claim:

“…there is no firm evidence that the pandemic has systematically favored broad higher wealth groups over lower wealth groups or vice versa”

Alas, according to Oxfam, the world’s 10 richest billionaires — which include Bezos, Microsoft’s Bill Gates and LVMH luxury group’s CEO Bernard Arnault — have collectively seen their wealth GROW by $540 billion over this period. Oxfam based its analysis of the wealthiest people on the Forbes Billionaires List.

In other words, the authors of the Credit Suisse report on global wealth did not think to look to Forbes to quantify whether or not the world’s richest disproportionately profited from a near-fatal slowdown of the world’s largest economy.

Because, of course they didn’t.

In any event, this is bad, and even if Mitch McConnell and his followers gets their way, and everyone goes shopping, it still isn’t going to likely fix a far more fundamental economic problem.

The Christmas shopping season of 2020 didn’t really make much of a difference, did it? That’s because all of the money is being hoarded by the 1%, and in the case of fiscal velocity: the buck literally stops with them.

And the stewards of our system (politicians in particular) are loyal only to the rich, so don’t believe for a moment that taxes are going to be raised, term limits are going to be set, or that there will be any other actual change at the top.

It’s during these times when people start to avoid paying taxes, resulting in a spike of what the IMF calls a “shadow economy,” which is not the same as a black market.

A shadow economy are those transactions that would normally be considered legal if people declared their income to the IRS and local tax authorities, but for various reasons elected not to.

If you’ve sold something on-line and chose not to report the income to the IRS, you’ve participated in the shadow economy, and it always grows when there’s economic setbacks, and in particular when people lose faith in their governance; they conclude that their taxes are not bringing them must value.

During the 2008–2009 “great recession” almost 10% of the US GDP was shadow economy: nearly $1.8 USD trillion, and this is money that isn’t taxed, which causes a real fiscal crisis within government, and if the government isn’t able to win back the trust of the people, this can create an interesting cycle.

Indeed, one might consider that this is precisely what’s occurred among the wealthiest 1% of the population: they have accumulated most of the economy’s wealth, AND they’ve chosen to leverage their vast power to ensure they don’t pay taxes.

The result: the blood clots, and eventually the system begins to fail.

A top-heavy institution is thus forced to retreat, projecting power in all directions, but mortally wounded, leaving tens of millions of Americans without a functional government; a ripe and fertile ground for foreign interventionalists to sow seeds of chaos, just as the US has done (CIA) in other countries for decades.

This may sound grim, but I am actually really optimistic. Granted, I’m warrior called, so hard times are my kink.

The only change for the better is going to be rooted right down in the streets, beginning in our homes, and extending into the neighborhoods. There’s no change coming from the top. Politics have failed us; they are loyal only to the rich and to themselves.

If you change focus you’ll see success stories beginning to manifest down in the streets.

In our work with community activists we are encountering a growing number of projects that are extending access to liquidity in a manner that promises to be really innovative and beneficial to communities that the banks are not interested in serving.

And increasingly we are speaking with community leaders who are interested in adopting “complementary currencies” that would stand side-by-side with the US dollar, designed to activate local economies just as the more centralized economy continues to consolidate and pool around a smaller number of individuals, to the detriment of the 99%.

I really do think this is a good thing.

It’s not the ending; it’s the beginning.



Kent Dahlgren

Product management fix-it guy. World-famous people skills. Extremely small hands. (edit) marketing lady says I’m also supposed to say “CEO of software company”