Explained: Nik Bhatia's Thoughts On The Velocity Of Money
On today’s show, Preston interviews USC finance professor and the author of Layered Money, Nik Bhatia. Nik provides his thoughts on the Velocity of Money. Preston Pysh So you talk a lot in your book about the philosophy of money. First, talk to us about just what that is for a person who’s maybe not familiar with the term, and then talk about the trend that we’ve seen with the velocity of money here more recently. Nik Bhatia Yeah. So money velocity, I introduce it in a very broad way where I say imagine yourself in the 13th, 14th century using coins every day, versus being able to defer settlement with a piece of paper. And if the piece of paper itself was treated as cash, then the ease of using paper versus coins meant that money can transfer from hand to hand more quickly than it could before. And so that’s what money velocity means more broadly. It’s how quickly does money change hands? How quickly do people transact with each other? Is it once a quarter or are they able to transact every day because money moves more quickly? And having thousands of different coins at one time, all in the same place is a disaster for money philosophy, but deferred settlement and trustworthy bankers that just issue notes that say, “I’ll pay you tomorrow,” or, “I promise to pay you tomorrow,” make things move a lot more quickly. Nik Bhatia And so money velocity accelerated with the advent of paper money, of promissory notes during the 16th century and Antwerp. But today money velocity has a more economic and a more quantitative definition where it’s actually measured by central banks and there’s statistics to calculate it. And we see that money velocity is slowing and it still does refer to the turnover of money in the system. And we see that slowing because I do believe there’s broken interbank trust. And we don’t see the lending because money philosophy really comes down to how quickly are banks lending money. And the lending is slowing because, like you said, counterparty trust is eroding. Every day, it gets worse than the day before. And so that causes money velocity to slow. So I think that’s one of the reasons we see that in official statistics. Preston Pysh So when we look at velocity of money and we look at this idea that Bitcoin could be potentially stepping in and playing a much larger role moving forward, how does that impact the velocity of money based on what you just said? Subscribe to We Study Billionaires podcast show: https://open.spotify.com/show/28RHOkX... To access our show notes, courses or forums, go to theinvestorspodcast.com. ⏤ ⏤ ⏤ ⏤ ⏤ ⏤ ⏤ ⏤ ⏤ ⏤ ⏤ ⏤ ⏤ ⏤ ⏤ ⏤ ADDITIONAL INVESTING RESOURCES: Ask the Investors: • Playlist Asset Allocation Course: • Asset Allocation Course Real Estate Investing: • 💸 Millennial Investing 🎯 Millennial Investing: • Millennial Investing Explained ⏤ ⏤ ⏤ ⏤ ⏤ ⏤ ⏤ ⏤ ⏤ ⏤ ⏤ ⏤ ⏤ ⏤ ⏤ ⏤ Download Stig & Preston's 1-page checklist for finding great stock picks: https://www.theinvestorspodcast.com/f... Have a question? Get your voice heard on the show: https://www.theinvestorspodcast.com/y... ⏤ ⏤ ⏤ ⏤ ⏤ ⏤ ⏤ ⏤ ⏤ ⏤ ⏤ ⏤ ⏤ ⏤ ⏤ ⏤ DISCLAIMER: This show is for entertainment purposes only. Before making any decisions consult a professional. This show is copyrighted by The Investor’s Podcast Network. Written permission must be granted before syndication or rebroadcasting.
