Money supply growth rose for the third month in a row in February, continuing ongoing growth from October’s twenty-one-month low. Even with February’s rise, though, money supply growth remains far below the unprecedented highs experienced during much of the past two years. During thirteen months between April 2020 and April 2021, money supply growth in the United States often climbed above 35 percent, well above even the “high” levels experienced from 2009 to 2013. As money supply growth returns to “normal,” however, this may point to recessionary pressures in the near future. During February 2022, year-over-year (YOY) growth in the money supply was at 7.1 percent. That’s up from January’s rate of 6.8 percent, and down from the February 2021 rate of 39.1 percent.
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Money supply growth rose for the third month in a row in February, continuing ongoing growth from October’s twenty-one-month low. Even with February’s rise, though, money supply growth remains far below the unprecedented highs experienced during much of the past two years. During thirteen months between April 2020 and April 2021, money supply growth in the United States often climbed above 35 percent, well above even the “high” levels experienced from 2009 to 2013. As money supply growth returns to “normal,” however, this may point to recessionary pressures in the near future.
During February 2022, year-over-year (YOY) growth in the money supply was at 7.1 percent. That’s up from January’s rate of 6.8 percent, and down from the February 2021 rate of 39.1 percent. Growth peaked in February 2021. Historically, the growth rates during most of 2020, and through April 2021, were much higher than anything we’d seen during previous cycles, with the 1970s being the only period that comes close. |
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Fed Stimulus and Declining Loan GrowthMoney supply growth was fueled in part by enormous amounts of deficit spending that occurred throughout 2020 and 2021. This led to the “need” for large amounts of monetization by the Federal Reserve. (This was needed to keep interest on the national debt low.) Indeed, as federal deficit spending grew throughout 2020, Fed purchases of government bonds increased substantially as well. Since June 2021, however, federal spending has fallen well below its earlier peaks. This has allowed the Fed to scale back its monthly asset purchases, and the growth in Federal Reserve assets has been slowing—although there are still no plans at the Fed to actually decrease total assets. Just because the Fed has announced the end of QE does not mean Fed assets are decreasing. They remain up, year over year: Moreover, year-over-year growth in commercial loans has been negative, further putting downward pressure on money-supply growth. Commercial and industrial loans in the US were down 2.3 percent year over year in February, and have been in negative territory since April 2021. Much of the talk over economic growth in recent months has focused on employment. The growth in the job market is a positive sign, to be sure, but given that purchasing power has gone negative thanks to inflation, the cost of living is likely to continue going up, mitigating the advantages of employment growth. 30-year fixed mortgages, moreover, have recently hit a 3-year high, and will further impact affordability. |
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