Answer the first question first... and not sure where you got your pic from but m2 didnt look so good in the 70s..
http://www.marketoracle.co.uk/images/2013/Apr/Velocity_Of_Money.gifvelocity is the output not input.. the end result is the velocity. It needs to rise to sustain the new supply. Its a ponzi scheme as soon as gold was given up.
well, there are several velocities of money depending on the monetary aggregate that you use (mine was from MZM), link in previous page, but:
* still I do not see any problem in the chart
* no central bank makes any monetary policy decision on the basis on velocity of money
But, I think this debate of velocity is heading us nowhere anyway.
