M2 tanking, M2 velocity gain at record high
deflation does not look likely; extended "pause" more likely
M2 is a broad money supply measure. M2 velocity is by definition (nominal GDP)/M2 .
The graph shows both in percent change from a year ago. M2 change from a year ago is -4.7 percent, while M2 velocity is up +10.0 percent, the highest rate in data going back to 1960. Based on the U.S. Treasury Fiscal Data, federal spending will total $4.16 trillion in fiscal year 2023, which is an increase of 9.8% from fiscal year 2022.
The Fed must be concerned that inflation might take off with any loosening from here, significantly if the war in Ukraine expands and the WEF/Neocon whores in Congress ratchet up defense spending. At the same time, the epic decline in M2 is of a magnitude previously associated with ensuing depressions. From Bing GPT-4:
Some examples of economic depressions that followed severe decreases of M2 money supply are:
The Great Depression (1929-1933), which was preceded by a 7.7% decline in M2 from 1929 to 19331. This was the worst economic downturn in U.S. history, with GDP falling by 27% and unemployment reaching 25%.
The Depression of 1920-21, which was preceded by a 10.9% decline in M2 from 1919 to 19212. This was a sharp but short-lived recession, with GDP falling by 6.9% and unemployment reaching 11.7%.
The Panic of 1893, which was preceded by a 3.8% decline in M2 from 1892 to 18942. This was a severe financial crisis that triggered a four-year depression, with GDP falling by 12.3% and unemployment reaching 18.4%.
The Long Depression (1873-1879), which was preceded by a 5.1% decline in M2 from 1873 to 18762. This was a prolonged period of economic stagnation and deflation, with GDP falling by 3.8% and unemployment reaching 14%.
I am guessing there will be an extended “pause” with short rates remaining around 5 percent until the recession arrives.
There will be a collapse of confidence and a recession when unemployment approaches 4.8 percent; then the Fed might loosen a bit, but will not dive down to near zero again.
The necessary condition for hyperinflation — a complete collapse of confidence in the government — may follow, as the Democrats use war to stay in the White House, blatantly tamper with the 2024 election, or both. In this case, the economy will plunge toward depression and the Fed will be forced to act the only way they can.
At the end of this opera, the full-bodied soprano sings, “Inflate … or die!”
Have a blessed day!