U.S. Money Supply Sees First Decline in 90 Years: What It Means for Wall Street and Investors

The U.S. money supply has recently experienced its first decline in 90 years, which has investors and economists worried about the future of Wall Street. The money supply, which measures the amount of money in circulation, is a major indicator of economic stability. As such, the decline in money supply has raised concerns about a possible economic downturn.

The Steepest Decline in M2 Money Supply Since 1933: A Sign of Trouble?

The recent decline in the M2 money supply, the broadest measure of money in circulation, is particularly alarming as it is the steepest decline since 1933. The M2 money supply includes cash, checking deposits, savings deposits, and other forms of liquid assets. This decline signals a decrease in consumer and business spending, which could in turn lead to a decrease in economic growth.

Experts are concerned that this decline in the M2 money supply could lead to a deflationary spiral, where falling prices lead to lower spending, resulting in further price declines. This cycle can be difficult to reverse and can lead to a prolonged economic downturn.

M2 Money Supply and Its Correlation to Previous Depressions and Panics

Previous economic depressions and panics have been associated with declines in the money supply. For example, the Great Depression of the 1930s saw a significant decrease in the money supply that contributed to the prolonged economic downturn. Similarly, the panic of 1907 was partially caused by a shortage of money.

The decline in the M2 money supply is a warning sign that investors and economists should take seriously. Historically, declines in the money supply have been indicative of economic instability and have led to prolonged recessions.

The Likelihood of a U.S. Recession Based on M2 and Other Economic Indicators

While the decline in the M2 money supply is concerning, it is important to consider other economic indicators as well. The unemployment rate, consumer spending, and business investment are all important factors that can contribute to a recession.

Currently, the U.S. economy is experiencing low unemployment and steady consumer spending. However, business investment has been declining, which may be a cause for concern. If business investment continues to decline, it could lead to decreased economic growth and a possible recession.

The Federal Reserve’s Outlook and the Yield-Curve Inversion: Further Evidence of a Possible Recession

The Federal Reserve has been closely monitoring economic indicators and has made several interest rate cuts in an effort to stimulate the economy. However, the recent yield-curve inversion has raised concerns about the possibility of a recession.

A yield-curve inversion occurs when short-term bonds have higher yields than long-term bonds. This has historically been a strong indicator of an impending recession. The recent yield-curve inversion, coupled with the decline in the M2 money supply, is further evidence that investors and economists should be cautious about the future of the U.S. economy.