Navigating the Soft Landing: Exploring the Impact of Falling Money Supply on Jobs and the Economy

The decline in the money supply in 2020 has not yet resulted in significant job losses due to the enormous liquidity injected into the economy, but price inflation remains elevated. The decline in monetary aggregates should have brought the Consumer Price Index (CPI) below 2.0 percent, but government spending and consumption of newly created currency are keeping inflation above target. If rate cuts and money supply growth continue next year, accumulated price inflation could surpass 23 percent. Central banks are increasing their purchases of gold to diversify their reserves and protect against the devaluation of fiat currencies. Bitcoin, stocks, and bonds are correlated with expectations of a larger money supply and lower rates, but gold remains a stable asset in a portfolio to escape the collapse of traditional currencies. The problem in 2024 is that soft landings are rare, and the impact of monetary contraction and rate hikes will be felt with a lag, while fiscal policy continues to drive deficits and debt higher.