President Trump advocates for the removal of Federal Reserve Chairman Jerome Powell, criticizing the Fed's management of the money supply, its politicization, and its impact on interest rates and the economy, particularly in housing. The article highlights concerns over the Fed's interest payments to banks, its reliance on politicized data, and its shift away from traditional monetary indicators, arguing that these issues have contributed to economic instability and high interest rates. Trump believes replacing Powell is necessary to restore proper monetary policy and reduce political influence in the Fed.
The U.S. M2 money supply has declined by nearly 4% from its peak in April 2022, marking the first significant drop since the Great Depression. Historically, such declines have correlated with economic depressions and high unemployment rates. While this suggests potential economic weakening, long-term investors can take solace in the historical resilience and growth of the stock market over extended periods.
The yield curve between the US2Y and US30Y has un-inverted, but concerns remain about the high-risk market, negative money supply, and the creation of a new "Bank Term Lending Facility" category by the FRB. This category has seen exponential growth, raising questions about transparency and potential market impact. Additionally, the prolonged market uptrend since 2009 and the presence of financial bubbles in areas such as cryptocurrency and private credit add to the overall market risk.
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.
The Eurozone's money supply has contracted for the first time in 13 years as lending activity slows down, raising concerns about the region's economic recovery. The European Central Bank's data showed that the annual growth rate of M3 money supply, which includes cash in circulation, deposits, and other liquid assets, fell to -0.2% in July. This decline suggests that banks are becoming more cautious in extending credit, potentially hindering economic growth in the Eurozone.
Veteran economist Steve Hanke believes that the US no longer has an inflation problem, citing a contraction in money supply and the recent lower-than-expected inflation rate of 3% for June. Hanke argues that the producer price index and consumer price index are both falling, indicating a decline in inflation. He suggests that if the Federal Reserve continues its current policies, inflation could reach the target range of 2% quickly.
Economics professor Steve Hanke warns that a recession could hit as early as the first quarter of 2024, citing the decline in the money supply since July 2022 as an indicator. Hanke believes that economic activity typically responds to changes in the money supply with a lag of six to 18 months. He also notes that the current trajectory of the money supply points towards an imminent downturn. Hanke criticizes the Federal Reserve for excessive money printing and suggests that it may not be possible to reverse inflation back to 2%. He also criticizes Bitcoin as a bubble with no inherent value and criticizes El Salvador's decision to make it a legal tender.
Economist Steve Hanke warns that a US recession is imminent following a significant slowdown in economic growth in Q1 of 2023, largely due to the Federal Reserve's failure to control the money supply. The President of the Minneapolis Federal Reserve Bank, Neel Kashkari, also warns of a likely recession as the banking crisis continues to apply pressure on the US economy, with the Fed's tight monetary policies over the past year potentially being the catalyst that starts the contraction of the US economy.
Economists who correctly predicted high inflation during the pandemic are now sounding the alarm about collapsing money supply growth in the UK, eurozone, and US, which they see as a warning of recession and deflation. Monetarists argue that growth and inflation are a function of the quantity of money in circulation and its velocity, which are now pointing to a slump. Central bankers have raised interest rates too far, and if the monetarists are proved right again, they say there should be a "clear out" of officials.
Economists who correctly predicted high inflation during the pandemic are now alarmed by the collapsing money supply growth in the UK, eurozone, and US, which they see as a warning of recession and deflation. They believe central bankers have raised interest rates too far and are calling for a "clear out" of officials if they are proved right again.
