Sticky Money

Behavior.  It’s what you say when someone sneezes.  And why you say it.  And where that phrase come from.  And why.

Behavior.  It’s also about how our species evolved.  And how all species evolve.  And where the first life-like molecules came from.

Big behavior.  Bitty Behavior.  Where do you want to sit?

I like looking at the big picture, mostly.  Sure, why we “bless” someone who sneezes is interesting, but not as interesting as why those sexy Italians can’t seem to make any babies.

Here’s a big picture item.  It’s called velocity by the bankers and economists.  It refers to the “sticky” component of your money.

What does sticky mean?  It means that when you get a dollar of disposable income, it sticks in your pocket.

What’s disposable?  That means it’s not rent, phone, or other expenses you HAVE to pay or you HURT.

Disposable income is what YOU get to CHOOSE to spend money on.  If you have any left over.  Do you want a fancy sweater?  That’s disposable income.  Do you want ice cream with those eggs and milk?  That’s disposable cash.

But if you never spend that disposable income, if you keep it in your pocket or savings account, then it’s sticky.

If you gave me a dollar and I spent it instantly, then it’s not sticky.  If the next person also spends it instantly, then it’s also not sticky for him.  And so on.  In one year, that one dollar may have changed hands a hundred times!  If that happens, we say the velocity is 100.

But if I wait a month to spend it, and the next person waits a month, then that dollar has a velocity of 12.  See?

Here’s the bad news.  Today’s money velocity is between one and two.  And the overall velocity is going down.

What does this mean?

It means that people are making their money stickier.  It means that we hold onto it longer.  And it means that whatever money our federal reserve puts into circulation, it ends up being less effective.

Sticky money.  Not a rock star, but something sitting in your pocket.

It’s something we measure, and something we can learn from.  Stay tuned!

 

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