The Worst Money Supply Plunge Since The Depression Means A Double Dip Is Now A 'Virtual Certainty'
Vincent Fernando, CFA | May 27, 2010, 3:18 AM
The stock of U.S. money as measured by 'M3' money supply fell to $13.9 trillion from $14.2 trillion during the three months ending in April.
This 9.6% annualized contraction is unprecedented in the post-Depression era, and shows how, in this sense, America isn't printing more money. There are actually less dollars in the system since U.S. money supply is crashing, even well into the recent economic recovery.
The positive take on this is that we don't have to worry about either inflation or the Fed tightening significantly any time soon.
The negative take is that this crashing money supply will lead to both deflation and a double dip recession:
"It’s frightening," said Professor Tim Congdon from International Monetary Research. "The plunge in M3 has no precedent since the Great Depression. The dominant reason for this is that regulators across the world are pressing banks to raise capital asset ratios and to shrink their risk assets. This is why the US is not recovering properly," he said. more