Posted on 06/24/2023 3:48:39 PM PDT by george76
Money supply growth fell again in April, plummeting further into negative territory after turning negative in November 2022 for the first time in twenty-eight years. April's drop continues a steep downward trend from the unprecedented highs experienced during much of the past two years.
Since April 2021, money supply growth has slowed quickly, and since November, we've been seeing the money supply repeatedly contract—year-over-year— for six months in a row. The last time the year-over-year (YOY) change in the money supply slipped into negative territory was in November 1994. At that time, negative growth continued for fifteen months, finally turning positive again in January 1996.
During April 2023, the downturn accelerated even more as YOY growth in the money supply was at –12.0 percent. That's down from March's rate of –9.75 percent, and was far below April's 2022's rate of 6.6 percent. With negative growth now falling near or below –10 percent for the second month in a row, money-supply contraction is the largest we've seen since the Great Depression. Prior to March and April of this year, at no other point for at least sixty years has the money supply fallen by more than 6 percent (YoY) in any month.
...
The money supply metric used here—the "true," or Rothbard-Salerno, money supply measure (TMS)—is the metric developed by Murray Rothbard and Joseph Salerno, and is designed to provide a better measure of money supply fluctuations than M2.
The Mises Institute now offers regular updates on this metric and its growth. This measure of the money supply differs from M2 in that it includes Treasury deposits at the Fed (and excludes short-time deposits and retail money funds).
In recent months, M2 growth rates have followed a similar course to TMS growth rates, although TMS has fallen faster than M2. In April 2023, the M2 growth rate was –4.6 percent. That's down from March's growth rate of –3.8 percent. April 2023's growth rate was also well down from April 2022's rate of 7.8 percent.
Money supply growth can often be a helpful measure of economic activity and an indicator of coming recessions. During periods of economic boom, money supply tends to grow quickly as commercial banks make more loans. Recessions, on the other hand, tend to be preceded by slowing rates of money supply growth.
Negative money supply growth is not in itself an especially meaningful metric. As shown by Ludwig von Mises, recessions are often preceded by a mere slowing in money supply growth. It is not necessary for the money supply to actually shrink to trigger the bust period of a boom-bust cycle. But the drop into negative territory we've seen in recent months does help illustrate just how far and how rapidly money supply growth has fallen. That is generally a red flag for economic growth and employment.
The fact that the money supply is shrinking at all is so remarkable because the money supply almost never gets smaller. The money supply has now fallen by $2.6 trillion (or 12.0 percent) since the peak in April 2022. Proportionally, the drop in money supply since 2022 is the largest fall we've seen since the Depression. (Rothbard estimates that in the lead up to the Great Depression, the money supply fell by 12 percent from its peak of $73 billion in mid-1929 to $64 billion at the end of 1932.)1
In spite of this recent drop in total money supply, the trend in money-supply remains well above what existed during the twenty-year period from 1989 to 2009. To return to this trend, the money supply would have to drop at least another $4 trillion or so—or 22 percent—down to a total below $15 trillion.
...
Since 2009, the TMS money supply is now up by nearly 189 percent. (M2 has grown by 143 percent in that period.) Out of the current money supply of $19.2 trillion, $4.8 trillion of that has been created since January 2020—or 25 percent. Since 2009, $12.5 trillion of the current money supply has been created. In other words, nearly two-thirds of the money supply have been created over the past thirteen years.
With these kinds of totals, a ten-percent drop only puts a small dent in the huge edifice of newly created money. The US economy still faces a very large monetary overhang from the past several years, and this is partly why after eleven months of slowing money-supply growth, we are not yet seeing a sizable slowdown in the labor market.
Nonetheless, the monetary slowdown has been sufficient to considerably weaken the economy. The Philadelphia Fed's manufacturing index is in recession territory. The Empire State Manufacturing Survey is, too. The Leading Indicators index keeps looking worse. The yield curve points to recession. Even Federal Reserve staffers, who generally take an implausibly rosy view of the economy, predict recession in 2023. Individual bankruptcy filings were up 23 percent in May. Temp jobs were down, year-over-year, which often indicates approaching recession.
Money Supply and Rising Interest Rates..
An inflationary boom begins to turn to bust once new injections of money subside, and we are seeing this now. Not surprisingly, the current signs of malaise come after the Federal Reserve finally pulled its foot slightly off the money-creation accelerator after more than a decade of quantitative easing, financial repression, and a general devotion to easy money. As of June, the Fed has allowed the federal funds rate to rise to 5.25 percent. This has meant short-term interest rates overall have risen as well. In June, for example, the yield on 3-month Treasurys remains near the highest level measured in more than 20 years.
...
Without ongoing access to easy money at near-zero rates, however, banks are less enthusiastic about making loans. This is not uniform across the economy, however, and the credit crunch is most acutely felt among smaller businesses and middle-class households. In the latest Senior Loan Officer Opinion Survey from the Federal Reserve, researchers found that bankers believe lowered expectations for economic growth coupled with deposit outflows will lead to banks tightening lending standards. Banks have found that demand for loans has weakened as interest rates have increased and economic activity has slowed.
We pumped five trillion Nancybucks into the economy over the last three years. No way we’ve metabolized all that.
The result of the Biden economy.
To combat inflation, you do need to synchronize the money supply with the amount of goods and service being produced. No way that it can be done without pain. I advocated a 'tear the bandaid off quickly' approach. Loan about $750 billion to Argentina, and wait for the inevitable default. Yeah, that's why they will never let me near any of the levers of power...
Price pressure ⬆️ Fed. House-Senate Budget passed.
Price pressure ⬆️
.
We seem to have an unlimited supply to spend on Ukraine.
When it goes up by 35% going down by 15% or more just isn’t a big deal for me. In fact, it sure looks like a good thing to me.
I’d like to see it go down by more like 50%.
What is more, rates are just nmw getting realistic. Embrace the suck kiddies, 3% mortgages and essentially free car loans aren’t normal. No way would I ever loan my money at such low rates. If your enterprise can’t afford more it isn’t worth investing in.
I’d say someday people would learn but that is just a stupid idea.
The result of the Biden economy.
———-
We haven’t seen anything yet….now we just might see why .gov is persuing the cashless sovereign digital currency. Once cashless, there will be no tracking or fore warning of a meltdown, which is most assuredly coming.
Similar to current Freeperthon. Ignore the obvious.
BidenDepression 2023
Maybe Spring 2024?
Hope I’m completely wrong about that, BTW.
✝️🙏🛐
🔝🔝🔝
Yep
(We haven’t seen anything yet)
Yeppers
It seems like the cart is before the horse here. Isn't money supply a result of the FED reacting to economic activity and not the other way around?
Money supply is controlled by the FED. It is their one job that they failed to do and gave us the Great Depression.
Good article.
Thanks for posting it.
It’s going to get much much worse.
There is a reason everyone is pushing for a war
Yep, we could use some deflation about now. The inevitable Biden recession is just the price he pays for massive deficit spending/money “printing”/QE.
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.