Martin Armstrong writes……”The economic growth in most countries has been declining for decades as has the velocity of money, As the velocity declines, it shows that people are either saving more or they do not have disposable income after taxes to spend. Normally, the velocity will decline and that is a sign of a recession. This is the normal reaction when people save and do not spend. However, if you are not in an economic recession/depression there is no FEAR FACTOR of what the future will bring, then the velocity declines because people really do not have the money after taxes to spend. This is one reason I keep harping on – it’s the taxes stupid!
In the USA, the velocity bottomed during the 2nd quarter of 2017 and has started to turn up with Trump lowering taxes. This is the first uptick since the decline began from the 3rd quarter of 1997 when the capital flows began to shift creating the 1997 Asian Currency Crisis. When Obama raised the tax rate from 35% to 39.6% in 2013, that began the real sharp decline.
The decline in the velocity of money and the rising burden of taxation is very alarming. That has been the worst combination for global economy.
Below is the chart of US velocity of money
Conclusion
US is the only country trying to cut taxes and put money in the hands of people. In most other countries , they just don’t understand that raising taxes or letting govt spend money on your behalf will just reduce velocity of money and future GDP growth.
This is absolutely true. The disposable income has been reducing over years and now with the shift in trends of working population and the shift in industry, tax policy should be renewed.
Perhaps an oversimplification of a very complex social issue. In developing economies it is essential for government to spend money on behalf of unorganized citizens. Infrastructure, utilities, systems & other essentials, that are taken for granted in the west require a firm “central” hand for equitable delivery. There is no escaping higher taxation as prosperity rises.