The money supply in the US is measured by two variables. M1, which is all of the dollar notes that are on hand within the US economy and M2 which is M1 plus all of the dollar notes that are held in more long term account types. M1 is usually open to fluctuations that match certain economic conditions while M2 is typically increasing as time goes on. However, M2 has recently been observed to be decreasing. Now, in past economic recessions and the Great depression, the M2 supply had dropped more than 2% points. That is the exact point where the M2 supply is currently. While this shows a strong historical record of predicting a oncoming recession, it is unlikely to insinuate a recession in the modern day. This is because while M2 is shrinking, most people don't rely on M1 type currency which played a heavy role in all of those past recessions.
Source: https://finance.yahoo.com/news/u-money-supply-shrinking-most-105000864.html
3 comments:
Interesting that the M2 money supply is decreasing because if I'm not wrong, M2 money supply is the money circulating in the economy and even though consumers are still spending a lot, the money circulating is decreasing. Also very interesting that this movement typically predicts recession, I guess we better keep watching closely.
Didn’t really think of it before, but considering the Fed’s tightening monetary policy in the past months, it makes sense the decline in M2.
Maybe the decrease in m2 is firms deciding to save revenues for the possible economic turbulence in the future. Amid all-time profit highs, revenue figures, and large consumer spending, it might be that simply firms that receive the consumer spending just aren't doing their part to recycle the money back into the economy.
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