Posts Tagged ‘amount’

Trading In New York Stock Exchange Market

Trading In New York Stock Exchange Market

The NYSE can trace its roots to 1792, however it did not become known as the New York Stock Exchange until 1817 when the organization drafted a constitution. In early times is composed of 5 rooms which were used for trading but today the trading center has expanded to much bigger. It is located in 18 Broad Street, New York City.

The New York Stock Exchange (NYSE), also known as the ‘Big Board’ was founded by a merger of the NYSE and Archipelago Holdings, which is fully electronic, and became known as the New York Stock Exchange Group.

It is the biggest stock exchange in the world in the amount of dollars that flows through it each day and has the second largest in terms of numbers of company listing, exceeded only by NASDAQ.

The global capitalization of the exchange is .1 trillion with .7 trillion by companies not based in the U.S.It works similar to that of an auction. Every company listed trades in one location. A specialist broker designated by each of the listed companies has the duty of acting as an auctioneer at the company post.

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Buyers and sellers of a particular stock come together around a specific post and an auction takes place. This form of trading helps generate a price for stocks that is competitive, efficient and fair for both buyers and sellers. The human interaction and the educated judgment helps determine the difference of the New York Exchange from other stock exchanges that are fully electronic.

NYSY Today

When it comes to how much money is traded at any given day, the New York Stock Exchange is categorized as the largest exchange market in the worldwide scope. It is also regarded as the vanguard in the equities market in terms of technology and investments coming in from around the globe. Each day, the New York Stock Exchange is where the largest companies buy and sell billions of dollars amount of shares.

The New York Stock Exchange comprises of member-brokers who take on the trading of stocks (buying and selling) for clients, which are financially huge companies based in different parts of the world. Together with the value of companies that trade on the New York Stock Exchange, it is estimated to have reach at nearly four trillion dollars. Members of the New York Stock Exchange buy and sell millions of dollars worth of stock for their costumer every single day.

www.StockmarketFunding.com Big Money on Wall Street Betting on Gold GLD Massive Call Options Trading on the GLD ETF. Massive Call Options Bought on the Gold Index Indicating a Flee to Safety? We’ve seen major names like “Alex Jones”, “Ron Paul”, “Gerald Celente”, “Robert Prechter”, “Doug Casey”, Max Kieser” and other notable names have been coming out and telling people to “buy gold” as well as the highlights with “gold manipulation” brought about by Gold Anti-Trust Action Committee (GATA). The SPDR Gold Trust (NYSEArca GLD) had some massive amounts of call buying today as we see big players on “Wall Street” move in to make “big bets on gold” “massive call options” purchased today represent huge amount of amounts to be purchasing on an intraday level. The technical analysis of options trading goes like this. The buyer of the call options is obviously “bullish on gold” and wanted to give him or herself time for the gold trade to work in there favor and that is why you’re seeing the majority of the gold options traded today in “LEAP”s going out till year 2012. We saw 97687 “GLD” January 2012 145 Calls traded and 70500 “GLD” January 2012 140 Calls traded. It’s obvious to anyone paying attention the “federal reserve” is printing a mass amount of “US dollars” and we’ll eventually feel the impact as the money is circulated throughout our “economic system”. We will continue to see how the Obama Administration reacts to the massive unemployment figures and the continued reliance …
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Five Ways to Get the Money Market Rates You Really Want

Five Ways to Get the Money Market Rates You Really Want

Investors in search of a low-risk, high-interest investment don’t need to look any further. A money market account works similarly to a savings account, and offers consumers an easy way to invest money and save for the future. Your initial investment is FDIC-insured, though the interest rate you earn will fluctuate based on current market conditions. If you can find an account with favorable money market rates, you’ll have the opportunity to invest without the danger of losing all your funds in a stock market crash. Consider these five strategies to find great rates for your money market account.

1. Don’t Confuse Money Market Accounts and Money Market Funds
First of all, it’s important to realize that money market accounts and money market funds are two very different types of investments. When you open a money market account, your interest rate will change regularly. However, the amount you deposited into the account will never be affected. With a money market fund, the entire balance of your deposit and the interest you’ve earned is invested into mutual funds. If the market performs poorly, the value of your account can diminish significantly. As you look for money market rates, make sure you’re looking for the right type of account. It won’t matter how much interest you earn if you end up losing it all later because of a poor investment.

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2. Prepare a Substantial Deposit in Advance
Most banks have minimum required deposits for money market accounts. They also categorize accounts based on their total size and initial deposit amounts. Typically, accounts with higher balances and deposits earn better money market rates. If you’re close to the cut-off point for a higher rate, save a little longer so that you can qualify for the next bracket. Of course, don’t leave your money sitting around while you wait. In the meantime, put your cash in a savings account or another short-term investment vehicle.

3. Plan Your Contributions and Research Available Offers
Before choosing a money market account, you should look around at the offers available from multiple banks. The interest rates you’ll earn are generally related to current market conditions, so you’ll often find pretty similar rates at most banks. However, your rates are also calculated based on the amount you’ll be investing. As you shop for rates, be sure to have a budgeted amount prepared, as well as an idea of how much you plan to invest in the future.

4. Watch the Market for the Best Time to Invest
In the months prior to opening a new account, pay close attention to current money market rates and the way the market is performing. Watching the market won’t necessarily tell you what to expect in the future, but it can give you a pretty good indication. This will help you determine the best time to invest so that you can choose a time when rates are high or stable. You’ll also be prepared in case the market experiences a downturn, and you can keep your money working for you in another investment vehicle while you wait to invest in a money market account. Once you open a money market account, remember that your investments will always be protected even if your interest rate falls.

5. Keep Your Account in Good Standing
Once you’ve found an account with great money market rates, be sure to keep your investment in good standing so that you can become eligible for even better rates. Though you can withdraw money from your account, try not to let your balance get too low. When you regularly maintain a high, stable balance, you can become eligible more quickly for higher interest rates.

Same Day Loans For People On Benefits ?Gain Money At Reasonable Rates

Same Day Loans For People On Benefits ?Gain Money At Reasonable Rates

Getting the loan approved for the physically challenged people is very difficult. But these is no more a challenge now as the loan market has introduces a new loan for suck kind of people. These are same day loans for people on benefits. This loan provides proper assistance for getting rid of the emergency like other healthy people without any hindrances. The loan may b required for paying extra bills or pending bills or even for their health check up.

Same day loans for people on benefits arrange amount form 100 pounds till 1500 pounds which is great help in hour of need. Even bad creditors physically disabled people can go for such loans without second thought as these loans do not check the credit history of the people but only their current repaying capability is important. The people with the bad credit like arrears and late payments can take the advantage with the help of such loans.

These loans are easy to avail without undergoing any discomfort. The person simply needs to go online search for the website providing loan at minimum interest rates and then fill its application form. After fulfilling till deposit it on the same site with few personal details which are mandatory to be fulfilled. Like one has to provide the proof that he/she is above 18years of age and possesses a permanent residential in UK. He/she must also be employed in a firm or organization with fixed salary which is sufficient to repay the loan amount. The applicant must also be having a valid saving bank account in his name. After all these requirements the applicant needs to wait or lose his hope as the lender will approve the loan immediately. The loan amount is availed for short term therefore the borrower needs to return it in time fully to avoid complication further.

Presented at the Ludwig von Mises Institute in Auburn, Alabama, on 24 June 2011.

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Where should you invest a down payment for a mortgage?

Where should you invest a down payment for a mortgage?

Purchasing a home is one of the most exciting things a family can do, but such a long-term commitment requires a long-term savings plan and a reasonably strict budget. It takes some discipline and patience for you to reach this goal, especially when you consider the significant amount of money you’ll have to come up with as a down payment.

When it comes to the amount for a down payment, the typical lender prefers about 20% of the total purchase price for your property. Anything less than 20% will make it more difficult for you to obtain the loan, or at the very least you’ll have to pay higher fees. This could include higher interest rates over the life of the loan, higher processing fees from the mortgage company, and a requirement that you purchase private mortgage insurance.

When you consider the amount of money involved, it’s obvious you will need to save money for some time before you will be able to afford a down payment. Unless you’re independently wealthy, you’ll probably have to follow a consistent savings plan from month to month so you can reach your down payment goals. But how should you invest this money? Should you use a simple savings account, or should you take a higher risk and go for higher returns?

It really depends on what length of time we’re talking about. If you’re investing this money for the long-term, you can afford to be a little bolder and choose investments that are more volatile but that also tend to be higher earners. On the other hand, if you need to access this money for a down payment within the next five years, you may want to consider a more stable approach.

Look at the stock market, for example. In the 1990s things were going great, and you could have been getting returns of 10%, 15% or 20% per year on your investment. On the other hand, if you placed your savings into the stock market during the mid-2000s, your money could have been wiped out during the financial crisis of 2007 and 2008.

Assuming you wish to buy a new home within the next five years, we would highly recommend a safer approach such as a money market mutual fund account. This kind of account will safeguard your principal (which is the original amount of money invested), and it will provide some interest along the way even though this interest rate tends to fluctuate.

Although the interest rates may not be very attractive at times depending on economic conditions and monetary policy, a money market funds account should at least beat a traditional savings account at your local bank.

The Vanguard’s Prime Money Market Account is one option you should consider when looking for a place to park your down payment money in the short term. At the time of this writing, this particular company only requires 00 to open an account. Another option is to use an online company with few branches like Etrade. The low number of branches helps reduce overhead and increase interest rates.

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Fixed Rate Mortgage – Past, Present And Current Market Status

Fixed Rate Mortgage – Past, Present And Current Market Status

Mortgage loans and fixed rate mortgage history:-

The fixed rate mortgage can be understood as a type of mortgage for which the interest rate has been fixed, or made constant, for the entire length of the mortgage term. Simply, it a mortgage loan with a constant interest rate, which does not change over the entire tenure of the loan. Mortgage loans are traditional types of loans, and have been in existence since centuries. In the past, moneylenders and lords (Europe 16th to 18th century) offered low mortgage rate refinance to needy people, often the pheasants and laborers. However, the middle class families too borrowed money to satisfy their financial needs, and later repaid the amount. In such cases, the lender generally decided the final fixed interest mortgage rate to be charged for the credit amount lent. The rate of interest was more or less standard, and did not change, but it was at the discretion of the moneylender to decide and fix the net chargeable home mortgage loan amount, since there was no controlling authority which decided which moneylender should charge what interest rate, and what kind of benefits the debtors should avail from the creditor, apart from the loan facility. So, to summarize the mortgage loans scenario of the past, the loan procedure and working was not standardized or streamlined. There was little or no authority to question the creditor on fair practice or ethical trade related issues. The rule was quite simple. The moneylender was rich and had surplus money, and was ready to offer some amount at a particular rate of interest. It was for the borrower to decide how badly the credit facility was needed, and whether it was possible to accept the terms and conditions. If yes, the lender would give the money, and the borrower repaid the home mortgage refinance amount as per convenience.

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Mortgage and fixed rate mortgage status now:-

Things are different now. Democracies and republics play the part of deciding how fixed rate mortgage and credit finances should be lent, and recovered. And since the governments are composed of common people, financial market has been greatly influenced by how creditors should lend their money, and what kind of protection the debtor should have while paying back the money borrowed. There are regulations in place, along with checks and counter checks, which balance the market economy, and ascertain that creditors do not harass their debtors, and also help the lenders to recover their capital in case the debtors fail to redeem. It has to be a two way street, a path which can be used by both the creditor as well as the debtor, in a harmonious manner?

Mortgage and fixed rate mortgage current market conditions:-

As far as the current mortgage indices are concerned, mortgage rates are indicating yet another strong move higher this week. This is owing to the focus amongst bond investors, who have strong concerns regarding the budget deficits and inflation. Even with the prevailing market conditions, mortgage rates still remain well below the 6 percent mark. The rates do not pose an impediment to deserving borrowers. The Federal Reserve currently has a trillion deficit in terms of outstanding mortgage payments, and if this deficit is catered to, it is possible to bring the mortgage rates down. No further announcements are likely to take place before June, this year, by the Federal Open Market Committee meeting. Mortgage rates sharply increased last week, indicating that the average 30-year fixed mortgage rate increased up to 5.65 percent. As per the national survey, the average 30-year fixed mortgage is associated with an average of 0.44 discounts, as compared to its origination points. The average 15-year fixed rate mortgage rose to 5.06 percent, and the average jumbo 30-year fixed rate rebounded back to 6.68 percent. As far as the average adjustable rate mortgages are concerned, the rate decreased to 5.01 percent while the 5-year ARM jumped to 5.20 percent. Everything said and done, the mortgage rates still remain significantly lower as compared to what they were a year ago. At this time last year, the average 30-year fixed mortgage rate was availed at 6.52 percent, indicating that a 0,000 loan would ideally carry a monthly payment of ,266.77. With the average rate remaining stable at 5.65 percent, the monthly payment for the same loan amount would be ,154.47, suggesting a savings of 2. 30 per month.

Why You’ll Want Money Market Rates

Why You’ll Want Money Market Rates

If you’re a thoughtful investor, you probably did your research on interest rates before you started looking for ways to save your money. Ideally, you consulted with banks and professionals about what arrangement would work best for your current financial situation, and you probably already have an amount set aside for your future – and that amount is growing. But even if you’re already set up with an independent retirement account and/or savings account, you may be missing out on opportunities to save even more money in the long haul with just a little more risk and a lot more reward by exploring money market rates.

A money market account actually works a lot like the savings account structure that you’re already used to, even if the money market rates set it apart. You can distribute money, such as from a preexisting checking account, into the account freely. Unlike stricter savings setups, you can also move money back into other accounts or withdraw it directly from your money market account. You can even write checks from this account; although they, like other transaction types, may be limited to a certain number per term or annum.
 
So why are money market rates typically so much higher than savings accounts?Think of your current savings account like a little safe where you put your money in stacks and it sits there untouched until you need it again, watched over by bank security. Money market accounts operate differently, because instead of keeping your money in this imaginary bank vault, the bank actually takes it and gets to use it to make its own deposits and investments in the financial market.

Once the bank has made or lost money using yours as a basis, it still needs to repay you the initial sum that you loaned. Just like your savings account, if you’re using a financial agency backed by the Federal Deposit Insurance Corporation or FDIC, this initial amount put into the money market is still guaranteed to you – even if the bank completely mismanages the funds or even goes out of business. You’re still completely protected. It’s this agreement and understanding that your money can be applied but you can still access it and retract it plus interest at maturity that enables banks to offer higher money market rates.

To get started, you may need a higher minimum balance than you would with a savings account. So it makes sense to stay with your startup account until you’ve saved and earned a good amount of money. Even with great money market rates, you still stand to do better if you start with a strong initial investment upon which your growth rates can have the biggest and best impact.

Break-Even Mortgage Interest Rate Calculator Hints

Break-Even Mortgage Interest Rate Calculator Hints

Let’s take a simple example (and let the break-even mortgage interest calculator do the work on more complicated scenarios).

During the time present are many several number of 1% mortgage investment, present are really merely two most important sign to achievements with a 1% mortgage advance.

The main source is to produce absolutely the finance is build perfectly from the start.

Along with the additional is to earn definitely you are apply the advance properly to expand the largely performance.

To start with, let’s seminar nearly how the mortgage installation.  After that we’ll make into how to arrange the mortgage upward perfectly usually you can cut the market repay these mortgage investments have to award.

Before all else, 1% mortgage investment cover amount choice.  Each one month as you find your mortgage record you will have the choice to create a 30 year set amount, a 15 year set amount, an activity merely amount along with a lowest amount by 1%.

Admitting you are prearranged many amount choices; you must simply choose the 1% lowest amount. 

As if you felt a need to promote to a 30 year set, 15 year set, or notice merely amount, you would be choice finish clean up that way of mortgage.  As rule as, these amounts are superior with a amount choice mortgage finance.

If you choose the 1% lowest advance you’re firstly profit will be a big monthly amount markdown.  Your mortgage amount will likely be finish in partly. Naturally, this is a cheerful smart basic profit used for mainly home-produced purchaser.

To compost the forcefulness of deciding the 1% lowest amount you must keep safe what you keep safe.  For request, let’s say you refinanced your house with a 1% mortgage credit; build all your credit cards, along with compact your monthly amount by ,000 a month. 

At this time, if you keep safe that ,000 a month for physically as a replacement for of giving it to your creditors, you will have ,000 in ready money at the finish of five years – along with that’s with a nought commission arrival.

Here’s the following performance to deciding the 1% smallest amount choice:

If you promote to an gain simply amount your mortgage stability will stay the similar.  If you promote to a 1% lowest possible amount you are in fact paying fewer than awareness solitary.  Accordingly, you are operating delayed gains which arrange your mortgage stability expand every month.

Previously you fad out, allow for that delayed gain is mortgage gain along with is accordingly tax confirmable.

Let’s say your house is ready up in price ,000 a month.  The 1% mortgage finance will authorize you to catch a little example of that gratefulness, say 0 a month, and bend it into a tax derivation.

Usually you are taking a minor part of your fairness each month and revolving it into a tax derivation.  If you did not sort out this, all of your gratefulness would be safe and sound up in square deal. 

Square deal is awful and is assuredly individual of the countless profit to house property.  Although investing in square deal will obtain you a nil commission answer. 

No body is ready to decline you a check every month for the square deal in your house.  At the same time as a topic of verity, if you felt a need to find the square deal out of your house you would have to put up for sale your house or find a mortgage.  Along with you best commission or you will not be capable to find a mortgage.

So why not take a minor sample of your square deal every month, bend it into a tax derivation, and by the similar moment keep safe ,000 a month for your character? You will fix have heaps of square deal although with a 1% mortgage credit you will have ready money AND square deal.

If you perform this for a few duration of period you will extend out way additional prematurely financially than if you did a usual 30 year set or an interest only mortgage credit.

A part from, if the delayed profit is a point, try making bi-weekly amounts.  Making a bi-weekly amount will cut, and in a few event cut out the delayed profit all mutually.  Which process your mortgage stability would not growth.

How to ready the loan up properly:

1)  The 1% amount choice on this investment is simply accessible for the basic five years.  But you could in reality keep individual of these loans for 30 or 40 years.  If you pick a 40 year mortgage your monthly amount will be decrease although the amount choice will not keep up for five years.  The label of the game is to keep the 1% advance whereas viable.  So make a 30 year paying back.

2)  The 30 year, 15 year and gain simply amounts are joined to an symbol.  Choose a slower affecting key according to the MTA (Monthly funds Average) instead of a quicker affecting sign according to the Libor (London Inter-Bank Offered Rate).

So how can you reduce with a 1% mortgage advance?

If houses in your section are promptly going down in price, delayed profit could basis you to turn into upside down in the house.

Although if your patch is experiencing a 3% to 5% rate of gratefulness and you keep safe what you save by making the lowest amount, a 1% mortgage finance can have an by much clear effect on your economic hope.

For extra advice about 1% mortgage investment and other mortgage associated points, please visit:

www.bestonlinemortgageloans.Com

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Investing Questions & Answers

Investing Questions & Answers

More Investing and Investing Q&A Please visit : invfaq.com

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How to Get the Best Money Market Rates

How to Get the Best Money Market Rates

Traditionally, if you wanted the best money market rates, you only had the limited options of your local bank or a few national banks.  Today, with online banking and shopping comparison sites, you can find money market rates from a host of banks across the nation.  Because of this fierce competition, banks are trying harder than ever to earn your business.  Here’s how to use this knowledge to your advantage to get the best money market rates.

How Money Market Rates are Determined

Money market accounts are essentially turbo-charged savings accounts.  You earn approximately the same interest rate, and you can write a limited number of checks from them.  While returns for money market accounts aren’t as high as with certificates of deposit (CDs), it is a trade-off of convenience.  With CDs, your money is saved with the bank for a limited period of time, with a penalty for early withdrawal.  This lowers the bank’s risk when lending money.  With money market accounts, you have the freedom and flexibility to withdraw money whenever you need to, so the bank gives you less interest accordingly.

Shopping for the Highest Money Market Rates

Like CDs, money market rates change on a daily basis.  There’s no set formula and no clear all-time winner when it comes to finding a bank that provides the highest rates.  Fortunately, banking rate comparison sites let you compare current money market rates between banks, while giving you details on specific terms such as how many checks you can write or what minimum balance (if any) you need in your account before you’re charged a monthly fee.  In many cases, you can invest as little as ,000, and as long as you don’t dip below that amount, you won’t be charged the monthly fee.  Because of the nature of money market accounts, there’s a legal limit set on how many checks you can write in a month.

Going Beyond the Best Rate

While the highest return rate is enticing, you should also look at the stability of the bank itself. Is the money market account FDIC insured?  How many checks can you write during a month? What’s the minimum deposit amount?   Like with CDs, the more you’re willing to invest, the higher your rate will go.  The best Money market rates are available to those who invest 0,000 or more in a money market account.

Money Market Account or CD?

Because they’re so similar, people often ask if their money would be better invested in a money market account or a CD.  If you don’t need access to your funds for a set amount of time, a CD will pay a higher rate.  If, however, you need the flexibility of writing checks, instant access to the funds you deposit, and the competitive interest rate of a savings account, a money market account is a better choice.   Overall, a money market account is a safe, low-risk way to invest your funds while giving you the freedom to access your money when you need it.

This program centers on fraudulent acts in the economy. The US bankers are resorting to every effort to make money out of thin air. They are blamed for manipulating interest rates so they would pocket the highest amount of money from the market. Reports indicate that more than 70 percent of the US wealth is in control of merely one percent of that society. It is on interest that people are so upbeat about the system that they do not believe such schemes are ongoing. Filthy politics has also a key role in deteriorating economy. They refuse to revaluate their currencies in order to wage wars and keep their economy up, at least in appearance. The best solution is said to be a return to the gold value system. JS Kim from Bangkok is Max’s guest in this edition of Press TV’s ‘On the Edge with Max Keiser’. Enjoy the show.

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Bouncing Stimulus Checks: Where Money Gets Stuck

Bouncing Stimulus Checks: Where Money Gets Stuck

From Bush’s TARP program to Obama’s stimulus bill to Bernanke’s “quantitative easing,” many leaders have attempted to spur the economy following the financial collapse of 2008. The size of each of these measures has been unprecedented and has stoked fears that significant inflation is right around the corner. Yet, the U.S. economy has grown rather slowly and deflation seems to be more of a concern. So the question begs to be asked: Where is the bounce in the economy? Have all these stimuli gotten stuck?

Before we go in search of this stimulus money, let’s map out the money supply so we know where to look. There are four broad measures of the U.S. money supply: M0, M1, M2 and M3. M0 is the narrowest measure and M3 is the broadest measure and is inclusive of all the components of M0, M1 and M2.

M0 is more or less the physical cash or hard currency in circulation. M1 includes physical currency but also demand accounts such as checking accounts and some savings accounts. M2 includes all components of M0 and M1 plus less liquid money such as smaller CD deposits and money market mutual funds held by individuals. M3 includes all components of M0, M1 and M2 plus large CD deposits and those held by institutions.

Here is a simplified summary:

M0 = coin and paper notes in circulation

M1 = M0 + checks in circulation

M2 = M1 + time deposits for individuals

M3 = M2 + time deposits for institutions

Mmm, No Good

In March 2006, the Board of Governors of the Federal Reserve decided to stop publishing the M3 monetary aggregate because it did not seem to show any additional information about economic activity that was not already communicated in M2.

Since using checks is nearly as easy as cash, the difference between M0 and M1 in terms of liquidity has also waned. Therefore, the biggest distinction in terms of money supply metrics occurs between M1 and M2. M1 is essentially money that is ready to be spent, whereas M2 is money that is parked in low risk savings.

The other places where money can be parked — or invested — would be in stocks, bonds and other more risky assets. Therefore, the level of M2 can often signal the amount of risk or volatility people perceive in the economy. A sudden jump in M2 usually means that people are liquidating more risky assets such as stocks and bonds and storing the proceeds in cash accounts or CDs which are FDIC insured.

M1 alone, on the other hand, is sort of like an individual’s “working capital.” This money represents the amount of money an individual wants to have on hand to cover bills and other monthly expenses. A large M1 balance could indicate that an economy is regularly spending a good bit of money and therefore needs to keep a higher M1 balance.

A Weakening Relationship

In the past few decades, however, the relationship between the money supply and the performance of the U.S. economy has become weaker.

In fact, in July of 1993, Federal Reserve Chairman Alan Greenspan remarked in Congressional testimony that “The historical relationships between money and income, and between money and the price level have largely broken down, depriving the aggregates of much of their usefulness as guides to policy. At least for the time being, M2 has been downgraded as a reliable indicator of financial conditions in the economy, and no single variable has yet been identified to take its place.”

In other words, it has now become very difficult to use money supply measurements — such as M1 and M2 — as indicators for economic growth. Not only that, but the ability to use monetary policy to stimulate growth has also weakened as a result of the breakdown in this relationship.

Fast Money

So what type of indicator can we use to figure out what is happening with stimulus money if the typical measures of the money supply are not strongly correlated to GDP? We could look directly at GDP as a measure, but since this figure is exactly what we’re looking to stimulate in the first place, it doesn’t tell us much about what’s going on behind the scenes and how stimulus money flows into GDP.

One of the factors that has complicated the relationship between GDP and the money supply is the speed with which transactions take place. Because of credit cards, ACH transactions and other technological advancements in money transfers over the past few decades, the same handful of dollars will change hands many more times and buy many more things in a given year. GDP is no longer constrained by the amount of money in circulation but by the amount of money multiplied by how quickly it moves.

The metric we really want to look at is the velocity of money. The velocity of money takes into account both GDP and the money supply. It’s measured simply by dividing GDP by M1. The result is basically how many times a particular dollar gets spent in a single year.

Measuring Stimuli

So how did TARP, the 2009 Stimulus Bill and “quantitative easing” impact the velocity of money? TARP essentially gave money to banks to shore up their capital base so they would begin lending again.

In the short run, it increased the supply of money, but not much of that money made it to the M1 level. In the long run, the hope is that banks will begin investing the money and people and businesses will spend — thus, increasing GDP. But banks have been slow to lend.

In fairness to the TARP initiative, though, the velocity of money at the time was in freefall. It dropped from 10.4x in June 2008 to 8.9x in December of 2008. What TARP did do is keep the credit markets from ceasing up and kept the velocity of money from screeching to a halt.

The stimulus bill was a massive increase in government spending and investment — both of which are direct components of GDP. In the short, run GDP increased by the amount of government spending as well as by the amount of subsequent private spending and investment from companies and individuals who benefited from government spending.

In the long run, however, the multiplier effect of the stimulus bill was muted because people and businesses were too fearful to either invest or spend as much of the money as they would under normal conditions and much of it got stuck in M1 and M2. M1 grew from .57 trillion in March 2009 to .76 trillion in September 2010. M2 grew from .41 trillion to .70 trillion over the same period. And the velocity of money has hovered between 8.4x and 8.5x — relatively unchanged over the same year and a half.

“Quantitative easing” by the Federal Reserve increased the money supply by creating money on its books and using it to buy government securities and other assets. In the short run, quantitative easing increases the money supply, which would slow down the velocity of money, but it also lowers interest rates (purchasing lots of securities lowers their yield and interest rates fall).

Lower rates and money in hand are meant to spur spending and investment in the long run, but the political climate is such that government spending is more likely to get cut. Business and consumer sentiment in the economy has improved, so it is possible that lower rates may spur growth in the private sector, but it is still too early to tell.

Bouncing Checks

The problem with all of these stimulus initiatives is not so much their size, but how they get injected into the economy. Any dollar that enters the economy has to get bounced around more than eight and a half times over the course of a year in order for it to improve the velocity of money. If banks, companies, the government or individuals simply horde that dollar in a savings account, then it doesn’t help much.

Stimulus money needs to be invested or spent on entities or individuals who are likely to spend or invest the money many times over. Any measures that create jobs are prime candidates as the unemployed likely have large backlog of purchases or investments that they have foregone (cars, appliances, etc.). These purchases could spur businesses to grow and hire new employees causing the money to continue to bounce around.

Stimulus money should avoid places where it is likely to get stuck — individuals, companies or other entities who are afraid to spend or invest the money and will hold it as cash. Banks have been a prime example over the last couple years due to all the fear and uncertainty in the financial sector. Although TARP money has calmed bank fears for survival, no amount of additional money will suddenly convince them that the economy is about to turn around and they should start lending.

Should the government or the Federal Reserve decide to undertake other stimulus measures, they have to be very careful about exactly who receives the money. If money doesn’t continue to bounce, the economy will continue to stay stuck.

Data and graphs on the U.S. money supply and velocity of money are available at Finance Ocean.

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