Obama is hurting the velocity of the money supply

Ben Stein:

Okay. Let me put on my weather-beaten economist's hat again and try to explain something important.

As we all know, we are in a recession that is bad and getting worse. So, basic question: How do we get out of it?

Well, look at it this way. The economy grows because of two factors: M, which is the quantity of money in the economy, which is controlled mostly by the Federal Reserve; and V, the velocity of money, or the rate at which it changes hands - or, as one might say, the speed with which it is borrowed, invested and spent.

Mr. Ben Bernanke, head of the Federal Reserve, has been doing a fine job of keeping the supply of money pumped up. Score one for him.

But the velocity of money has slowed dramatically.

People at every level are afraid to spend because they fear conditions will get worse and they're going to need the money in the future just to survive. So they don't spend it.

One of the big contributors to fear is the big goombahs in the society saying how bad things are. When Mr. Obama or his economists tell us how terrible things are and how they're going to get worse, they're shooting fear into the economic bloodstream, and that hurts velocity and kills stocks.

Notice that recently Ben Bernanke said the recession might end this year, and the stock market rocketed up that day.

...

I think one of the reasons why George Bush was more successful at pulling us out of a recession he inherited was he understood velocity. Remember how Democrats ridiculed him for suggesting that people go about their normal lives and go shopping.

Obama on the other hand may know some MBAs, but he knows little about what they know and he has not only been talking down the economy he has been threatening business such as the travel and entertainment group. These guys are important to the economy just like housing and banking and retail. Unless he wants to bailout Las Vegas and Disneyland next, he needs to back off this screed.