Dear Reader,
The money supply is on the rise again.
In August, it grew faster than it had in almost two years. That marks the third time in four months it has increased. This isn’t a fluke. It’s a sign of what’s coming.
- Money supply surges again: After months of decline, the central bank is increasing the money supply, hinting at trouble ahead.
- The Fed prioritizes jobs over inflation: Recent rate cuts show the Fed fears job losses more than rising prices.
- Expect more money printing: The Fed will keep pumping money into the system, even if it risks long-term inflation.
For over a year, the money supply had been shrinking. That’s rare. But now, it’s expanding again. Since April, year-over-year growth has been ticking up. The central bank is back to what it knows best—pumping more money into the system.
Why? The answer is simple: fear of a recession.
The money supply has been flat for 17 months, sitting around $18.5 trillion. The Rothbard-Salerno measure, a better gauge than the usual M2, shows this growth clearly. No matter how it’s measured, though, the money supply is growing. This tells us one thing: the economy is shifting again.
Typically, the money supply slows down 18 months before a recession hits. That started in 2022. It even went negative for a short time. But 2024 has seen growth return. Historically, when the money supply rises again, it signals that a recession is near.
The money supply hasn’t fallen enough to offset the massive spike from the COVID-19 crisis. We’re still $3 trillion above where things would have been under normal circumstances. The supply of money has grown dramatically since 2020, with $4.6 trillion created in just the last five years.
Looking ahead, expect the money supply to keep rising.
The Fed raised interest rates in late 2022 to combat inflation, keeping rates at 5.5%. But they didn’t undo the huge money-printing spree of the pandemic. Why? Because they fear triggering job losses.
In September, the Fed started cutting rates again. The full impact of this hasn’t shown up in the data yet. But history tells us that when the Fed cuts rates, it’s usually a sign they expect a recession. This pattern has played out before—in both 2001 and 2008. Rate cuts often lead to job losses, and the Fed hopes to soften the blow by adding more money to the system.
Without tighter policies from the Fed, the money supply will keep growing. If the economy worsens, loan defaults could shrink the money supply. That might lead to falling prices, which could help people like first-time homebuyers. But the Fed won’t let that happen. They’re allergic to falling prices. As the economy slows, expect more interventions.
The cycle is repeating. The Fed fears recession, cuts rates, and floods the economy with money. This time, it’s no different.
Freedom Financial News