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Economy , European Markets , US Markets

U.S. Money Supply Deflates 2% Annually (What That Means)

The debt bomb implodes: Expect recession and deflation

by Bob Stokes
Updated: March 09, 2023

Many pundits have expressed worry about the ramifications of global debt -- and rightly so. As the Wall Street Journal noted toward the end of 2022:

The world has amassed $290 trillion of debt and it's getting more expensive to pay for it.

In the U.S. alone, the cost of servicing the national debt is expected to skyrocket over the next decade (Fox News, Feb. 27):

Interest payments on the national debt to reach $1.4 trillion annually in 2033: CBO

There's also the issue of household debt in the U.S. That debt bomb is already in the process of imploding. Here's a chart and commentary from our March Global Market Perspective:


A rare shift in the mindset of consumers started in March 2020, when Real Total Consumer Credit began to decline. Since August 1982 … the growth in U.S. consumer debt has been almost straight up. But there were two prior episodes in which American consumers' otherwise insatiable appetite for debt dissipated: from December 1989 to October 1992 and from December 2008 to November 2011. Both periods encompassed economic recessions. It happened again starting in March 2020, but this time, real consumer debt failed to recover to new highs with the economy.

Another important point to make is that the balance sheets of the European Central Bank, the Bank of England and the Federal Reserve have been deflating -- and so has another key measure.

This chart and commentary are also from our March Global Market Perspective:


More deflation evidence comes in the form of overall money supply in the U.S. ... The chart shows the annualized percentage change in M2 since 1981. Apart from a very brief (one week!) foray into negative territory in 1995, money supply in the U.S. has been inflating for at least 40 years. Now, though, money supply is deflating at a current annualized clip of over 2%. This historic and now twelve-week-long contraction in money on this basis looks like it is becoming embedded.

As a debt bomb implodes, recessionary forces gather steam and deflation develops, prepare for what's likely ahead by reading our Global Market Perspective.

Following the link below gets you started.

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