Implications of declining money velocity In the United States, the velocity of both the M1 and M2 money supplies has been declining for over a decade.

The decline in the velocity of M1 could be explained by the shift away from cash to cards and online payments.

What are the causes and implications of the decline in the velocity of M2?

Does it signify that the money supply is growing faster than GDP? If so, is real GDP declining? Does it indicate some sort of lack of liquidity? How does this relate to interest rates?

Thanks!
http://www.forbes.com/sites/traceygreenstein/2011/09/20/the-feds-16-trillion-bailouts-under-reported/#5a1dec1d6877

The decline in money velocity is due to enormous monetary injections, which mostly sat in recipient bank accounts and had no effect on the real economy. Under the Keynesian and monetarist theories that central banks operate upon, an increase in money supply should ease liquidity constraints and allow the economy to resume growth. In reality not much further growth was possible, likely because of the stagnation in conventional oil production.



To answer your questions:


Yes
Not yet
No, it indicates a lack of viable uses for the cash
Interest rates fell because of the relatively small decrease in banks balance sheets coinciding with a sharply declining return on capital, and thus diminishing incentive for investors to leverage, causing increasing supply relative to demand for credit