Contact us
CALL US NOW 1-888-GOLD-160
(1-888-465-3160)

Slowdown in Money Creation Could Be Another Recession Signal

  by    0   0

The slowdown in money creation could be signaling a recession.

The growth in the money supply has dropped precipitously over the last several months. As measured by M2, the money supply expanded by 6.6% year on year. That was down from April’s growth rate of 8.21%. In  May 2021, M2 grew by 14.30%. M2 growth peaked at a record 26.91% in February 2021.

Based on the “true” or Rothbard-Salerno money supply measure (TMS), money supply growth also dropped in May after rising slightly during the previous two months.

Between April 2020 and April 2021, money supply growth often climbed above 35% on a year-over-year basis.

Economists Murray Rothbard and Joseph Salerno developed TMS to better measure money supply fluctuations. TMS differs from M2 in that it includes Treasury deposits at the Fed while excluding short-time deposits and retail money funds.

As Mises Institute senior editor Ryan McMaken explains, changes in money supply growth can help measure economic activity and indicate looming 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. However, money supply growth tends to begin growing again before the onset of recession.”

As you can see from the chart above, based on TMS, money supply growth already appears to be trending higher, the slight drop in May notwithstanding.

The gap between M2 and TMS is also revealing. Historically, TMS has climbed and become larger than M2 in the early months of a recession. According to McMaken, this occurred in the early months of the 2001 and the 2007–09 recession. A similar pattern appeared before the 2020 recession.

And it happened again in May when the M2 growth rate fell below the TMS growth rate for the first time since 2020.

As our technical analyst noted recently, even though inflation is unlikely to come down as the money supply continues to grow, the stock market and economy are built on a rapidly expanding money supply. With such sluggish growth, it will be very challenging for the stock market to hit new highs and the economy to avoid recession.

The Atlanta Fed recently lowered its Q2 GDP projection into negative territory. That would indicate we have been in a recession since the beginning of the year. Most people seem to think the recession will be short and shallow, but Peter Schiff recently said that is a fantasy.

The idea that this recession could be anything but severe is farcical. There is no way we can have a shallow recession.”

Free Silver Report

Get Peter Schiff’s key gold headlines in your inbox every week – click here – for a free subscription to his exclusive weekly email updates.
Interested in learning how to buy gold and buy silver?
Call 1-888-GOLD-160 and speak with a Precious Metals Specialist today!

Related Posts

Atlanta Fed Lowers Q3 GDP Growth Forecast Close to Zero

The Atlanta Fed has lowered its GDP estimate for the third quarter to 0.3%, and the trend is downward. That means the economy is teetering on the verge of another quarter of negative GDP growth. Would that be enough to raise recession alarms?

READ MORE →

Fed Rate Hikes Will Add Trillions to National Debt

Federal Reserve rate hikes will add trillions to the national debt, according to an analysis by the Committee for a Responsible Federal Budget.

READ MORE →

Chinese Gold Demand Appears to Be Picking Up Again

Gold demand in China showed renewed strength over the last two months despite scattered COVID-19 lockdowns. Both gold withdrawals from the Shanghai Gold Exchange (SGE) in August and gold imports in July were up. China ranks as the world’s number one gold consumer.

READ MORE →

Some Things Never Change: US Government Runs Another Big Deficit in August

Some things never change — such as the federal government spending more money than it has month after month after month. August was no different. The US government ran a massive $219.6 billion budget deficit last month, according to the latest Monthly Treasury Statement. That nudged out July as the second-largest monthly deficit in fiscal […]

READ MORE →

Queen Elizabeth’s Death Puts Squeeze on Already Tight Bullion Coin Market

The recent death of Queen Elizabeth II is squeezing gold and silver bullion coin markets that were already strained by tight supplies. There was an immediate and dramatic surge in demand for gold and silver bullion coins bearing the queen’s effigy upon her passing. According to News.com.au in Australia, “Collectors are scrambling to get their […]

READ MORE →

Comments are closed.

Call Now