Money Supply Should Grow In-Line with Economy

Nov 2, 2022 | Macro Insights, No Bull Economics


Money growth (as measured by M2) is important to feed a growing economy. In fact, we can see from this chart that the Fed usually increases money growth during recessions (indicated by the gray-shaded areas) as a higher level of liquidity is considered beneficial during times of economic stress. Added liquidity is particularly important to consumers and banks that typically suffer from a higher probability of defaults driven by recessions. This practice by the Fed reflects a consensus that a contraction in the money supply is what instigated the Great Depression. In the end, the goal is not to set off deflation which provides consumers an incentive to hold off their purchases because of expectations that future prices will be lower.

So, why is it that we currently see such a sharp decline in M2? This question is especially relevant given that there is good reason to believe that we are already in a recession (notably, McDonald’s management says their base case for the economy is a recession). Just like our economy would benefit from an increased supply of energy & food, right now we will also benefit from positive M2 growth.  

Money Supply Graph
M2 & Recession Graph

Follow us on LinkedInTwitterFacebook, and YouTube!

Disclaimer of Liability
No Bull Economics
Restaurant Research

Email Sign-up

Jack in the Box Corporate Insights

Jack in the Box results reflected an improvement in: dining room openings (60% of system); innovation, upsell & add-ons sales; digital progress which is helping frequency; and late-night.

How to Circumvent Food Shortages?

The vulnerabilities of a long-distance supply chain have become very evident over the last couple of years, especially when it comes to farming.

This Week in Summary 11/18/2022

We want to spotlight Target this week which provides valuable insight on consumer spending.

How Would You Value the Federal Reserve?

Here is an idea: let’s take the Federal Reserve public in the world’s largest IPO.

How to Pass Along Inflationary Costs Without Losing Traffic?

Wendy’s is avoiding standardized menu price increases and turning to strategic increases designed not to price out lower income consumers.

Investors in Retail Stocks Think Consumers are Back

Recent retail stock gains would suggest that investors are confident in consumer strength, despite continuing inflationary issues.

Papa John’s & Chili’s Reveal the Plight of Cash Strapped Consumers

The relevant question remains whether consumers who are increasingly cash-strapped can be convinced to pay more for higher quality levels?

This Week in Summary 11/11/2022

Market melt up & the midterm elections

DoorDash’s Grip on Labor Costs is Funding New Investments

Doordash’s platform generated +10% of all restaurant industry sales.

3Q Results for Bloomin’, Texas Roadhouse & Cheesecake

Full serve restaurant sales performance is currently a function of customer demographics.

Digital Marketing Opportunities
Restaurant Research

A Restaurant Research LLC Company