Ryan McMaken at Mises Institute has a new article out with an analysis of money supply. Two separate measures of money supply, TMS and M2 both indicate historic rates of decline.
Money supply growth in the United States has continued to decline, reaching negative territory for the second consecutive month in April 2023. The year-over-year change in money supply dropped to -12.0 percent, marking the largest contraction since the Great Depression. This decline serves as a warning sign for economic growth and employment prospects. While negative money supply growth does not always indicate a recession, it raises concerns about the state of the economy. Despite the recent decrease, the overall money supply remains higher than the period from 1989 to 2009.
The decrease in money supply can be attributed to the Federal Reserve’s decision to reduce the injection of new money into the economy. This move signifies a shift from an inflationary boom to a potential economic downturn. As interest rates rise and lending conditions become less favorable, banks have become more cautious about granting loans.
This trend is particularly impacting smaller businesses and middle-class households, leading to a tightening of lending standards. The combination of lowered economic growth expectations and deposit outflows has further contributed to the decline in loan demand.
The weakening of the economy is evident through various indicators. Manufacturing is experiencing a downturn, with both the Philadelphia Fed’s manufacturing index and the Empire State Manufacturing Survey indicating recessionary conditions. The Leading Indicators index and the yield curve also point to a potential recession. Moreover, Federal Reserve staffers predict a recession in 2023. The recent increase in individual bankruptcy filings and the decline in temporary jobs further indicate economic slowdown. Despite the large monetary overhang from previous years, the slowdown in money supply growth has had a considerable impact on the economy.
Source : uspolicy