Recession Risk Grows After Money Supply Shrinks At Fastest Pace Since Great Depression

The text discusses the possibility of a soft landing, but notes that it is harder to achieve than in the past.

New Federal Reserve data shows that the U.S. Money Supply contracted for a third consecutive month and has declined at the fastest rate since the Great Depression.

In February, the

M2 Money Supply

The benchmark, which measures the amount of cash, bills and coins in circulation, as well as bank deposits and money market funds, fell 2.24 percent compared to the same period a year earlier, from a negative 1.7 percent recorded in January. This was the third consecutive month that money supply contracted.

Early indicators indicate that March will be another month of contraction, with the M2 money supply falling 3.13 percent over the previous year in the week ending on March 6.

The total money supply in the United States was $21.099 trillion as of the end February.

Money supply between 1929 and 1933


By 28 percent

The money supply is still nearly 38 percent higher than it was before the pandemic, despite the decline in percentage.

The Fed's massive balance sheet and the central bank's reversal of its liquidity injections during the pandemic era led to the downward trend that began in February 2021.

Many economies around the world are experiencing a slowing of or contraction in M1 money supply.

M1 is the annual growth rate in the European Union

The economy contracted by 2.7%

In February, the rate was down from -0.8% in January. The United Kingdom's m1


The M1 for Canada increased by 1.55 percent to January. The M1 for Canada


For three months in a row to close 2022, the stock market fell 3.57 percent.

Recession Confirmed?

Does this indicate a recession? Some economists say that the decline in money supply in the United States, and in other countries, is a sign of an economic recession.

We haven't seen a decline in money supply like this since The Great Depression.

You can also read about the importance of this in our article

Mike Shedlock is an economist at SitkaPacific Capital Management and a registered investment advisor.

The contrarian view is that the recession has already begun, not that it will happen later.

Steve Hanke, professor of applied economy at Johns Hopkins University, and senior fellow at Independent Institute thinks that a U.S. economic recession is baked into the cake.

He said that the Fed has mismanaged the money supply, and the M2 is now falling at the fastest rate since 1930.

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'The QUANTITY OF MONEY tells you that economic activity will fall 6-18 months after the M2 falls.

Others, such as Fed Chairman Jerome Powell do not believe that the money supply has an impact on the economy.

Powell: "When you and me studied economics, a million year ago, monetary aggregates and M2 seemed to have an association with economic growth."

Tell them to get on with it

Sen. John Kennedy (R-La.) "Right now, M2 does not have any real implications." We have to learn it again, I suppose.

(Julia Nikhinson/Getty Images) Federal Reserve Board Chairman Jerome Powell speaks at an interview in the Renaissance Hotel, Washington on February 7, 2023. (Julia Nikhinson/Getty Images)

Many leading indicators of recession have flashed red again.

The Conference Board Leading Economic Index, which measures credit, manufacturing and labor, has a negative six-month average.

Justyna Zabiska-La Monica is the Senior Manager of Business Cycle Indicators at the Conference Board.



The popularly watched


Since July 2022 the difference between two-year and 10-year Treasury rates has inverted, trading at about negative 60 basis points on April 11. It is considered to be the most important recession indicator as it has predicted nearly every recession since the Second World War.

The Fed

Recession gauge

The yields on the 3-month and 10-year notes have also been inverted, with a negative 167 basis point trade since October 20, 2022.

Long-term bonds typically yield more than short-term ones. The opposite occurs, however, if there is a persistently weak economic outlook and a credit squeeze in the banking sector.

The Institute for Supply Management's Manufacturing Purchasing Managers' Index fell by a further ten points to

In March, 46.3

Fast every time that this metric fell to this low level, the U.S. was either in or near a recession. The manufacturing sector now only accounts for 11 percent of GDP.

Eric Lascelles is the chief economist at RBC Global Asset Management. He believes that a recession has 'gone up somewhat'

He wrote that 'whereas the risk for a U.S. economic recession in the next year was around 70% a few months back, it may now be up to an 80% chance'.



"A soft landing is still technically possible but harder to achieve now than ever before."

Despite deteriorating metrics, Treasury Sec. Janet Yellen remains confident that the U.S. will avoid a recession.


The U.S. Economy is performing extremely well

She said that the continued creation of jobs, the inflation rate gradually decreasing, and robust consumer spending were all signs of a healthy economy.


So, I don't anticipate a recession in the economy. But, it is still a possibility.