What would cause the velocity of money (V) to increase / accelerate (or at least stop falling) Given that:

MV=PY

Or

P = (M)(V) / Y

Where M is the money supply, V velocity of money, P price level and Y real GDP


Considering that the current rate of M2 is increasing at 7% per year over the last 12 months, and real GDP is now forecasted to decelerate from 1.9%/year to maybe as low as .4% by the end of Q4 2019, (according to the Atlanta Fed), am I correct to assume, going forward, that even the slightest sustained increase in (V) would rocket inflation from our current 1.7% per year to something resembling an inflation rate of over 7% in the very near future?


My primary question is this: what event(s) or scenerio(s) can you think of that would cause the velocity of money (V) to start increasing / accelerating again; or at the very least, stop falling like it has over the last 9 years?

Would V be expected to increase as a result of a mass exiting of the stock market (frigtened stock market investors liquidating their retirement holdings into cash and then spending it)?

For instance, the stock market starts falling and worried baby boomers start cashing out their retirement accounts and then start spending it on things like medical care, prescription drugs, on retirement housing, vacations, RVs, ect?

Or maybe baby boomers start dying and their children start taking the inheritance money and spending it all on consumer goods; buying sports cars, electronics, vacations, boats, ect?
[...] what event(s) or scenerio(s) can you think of that would cause the velocity of money (V) to start increasing / accelerating again [...]

That commercial banks stop using injected liquidities to &quot;consolidate&quot; their balance sheet instead of credit-stimulating demands. Extract from one of my previous answer, illustrated on Europe:


What I mean by &quot;consolidate&quot; is that the subprime crisis and its consequences have contaminated the Euro-zone's commercial banks through securitization, interrogating the default risk associated to their assets and liabilities. Injected liquidities have thus often been used by commercial banks to anticipate these potential defaults on the one hand, and to elevate their fractional-reserve ratios on the other hand so as to comply with the Basel III framework.


Indeed, there is a strong relation between fractional reserve banking (FRB) and the velocity of money, see, e.g. this.


Would V be expected to increase as a result of a mass exiting of the stock market (frigtened stock market investors liquidating their retirement holdings into cash and then spending it)?

I do not think so. Simply because I do not see stock market investors redirecting their capital toward commercial banks, i.e. toward FRB-to-velocity engines. That being said, why not (!). It all depends on their psychology.


For instance, the stock market starts falling [...] ?

The mechanism that you are so involving can only very indirectly change the velocity of money. According to me, this is not to be considered as key driver.