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
Restaurant Research

Email Sign-up

15 Second Posts

We Have a Plan to Rescue the US Dollar

While NoBull’s simple 1% Plan to fix America’s deteriorating financial condition will not cure our condition overnight, it could buy us some time by setting the U.S. dollar on a firmer foundation.  

A Run on the Fed?

The Fed has crushed its own bond portfolio by hiking interest rates. Maybe there will not be a run on the Fed, but perhaps we should be more concerned about a run on the US$.

China Schools the US on Morality

Must read: China lectures about U.S. Hegemony & Its Perils. Maybe China would prefer if it had hegemony instead? Some classify this diatribe published in February 2023 as an informal declaration of war.

What is Going on with the Banks?

The frailty of the banking system has come front & center over the last couple of weeks as more secondary, unintended symptoms develop from the Fed’s race to raise interest rates.

Powell Faults an Overheated Labor Market for the Need to Hike Rates Again

Despite growing evidence of systematic bank risks associated with the Fed’s aggressive rate hikes over the last year, Powell hikes another 25 bps anyhow, citing labor pressure as the culprit. However, in the real world, labor conditions are already improving.

Fixed-Income Issuance Says a Lot About Economy

Total U.S. fixed income (FI) issuance declined -34% y/y to $8.8 trillion during 2022 as interest rates ramped up.

Bank Deposits Growing Much Faster than Business Loan Demand

Banks have been parking excess deposits in various forms of government debt that are subject to interest rate risk & in some cases, risky crypto bets. This is causing systematic risk.

Nerdwallet Survey Shows an Indebted & Very Stressed Consumer

Consumers are combating the higher price of living & higher interest rates by driving less, buying store brands & taking on more debt.

The United States of America is Worth Saving

Americans need to be reminded about our heritage as the single most productive nation as measured by GDP/person with a unique capability to bless the entire world if we can simply get back to business.

Should Private Banks Go Extinct?

Since the 2008 Great Recession, 134 banks with assets of $1.25 Trillion have been closed by regulators. At the same time, the Fed’s ballooning balance sheet now amounts to nearly 50% of total domestic bank deposits.

Digital Marketing Opportunities
Restaurant Research

A Restaurant Research LLC Company