Zhitong Financial APP learned that the US money supply fell again in June compared with the same period last year. In November last year, the US money supply turned negative for the first time in 28 years, and has been stuck in a negative growth area since then. The U.S. money supply continued to fall sharply in June, continuing the sharp downward trend after the highs experienced for most of the past two years. Since April 2021, the growth rate of the US money supply has slowed rapidly. However, since November last year, we have seen the M2 money supply contract year-on-year for eight consecutive months. The last time the year-on-year decline in the money supply slipped into negative territory was in November 1994. At that time, negative growth continued for 15 months before finally turning positive again in January 1996. The magnitude of the currency contraction that has not been seen since the Great Depression of the 1930 s! The money supply has now been negative for eight consecutive months. In June 2023, the monetary downturn continued as the money supply fell by -12.4 per cent year-on-year (TMS benchmark), a slight pick-up from -13.1 per cent in May, but well below the 5.7 per cent in June 2022. With negative growth approaching or below-10% for three consecutive months, **the money supply has shrunk by the largest amount since the Great Depression in the 1930 s, and no month of money supply has fallen by more than 6% (year-on-year) in at least 60 years before March to June this year. * *! Figure 1.jpg The money supply measure used in this paper-the Rothbard -Salerno Money Supply Measure (TMS), which was developed by Murray Rothbard and Joseph Salerno to provide a better measure of money supply volatility than M2 * *. This money supply indicator differs from traditional M2 in that it includes the Fed's Treasury deposits (excluding short-term deposits and retail money funds). Mises Institute, a well-known research institution, regularly tracks this indicator, arguing that it provides a better measure of money supply volatility than M2. **In recent months, the growth rate of M2 has followed a similar process to the growth rate of TMS, although TMS has declined faster than M2. M2 growth in June 2023 was -3.5 per cent. That was a slight pick-up from May's -3.7 percent growth rate, but the negative June growth was far worse than the positive 5.6 percent growth seen in the year-ago quarter. The rate of money supply growth is usually an important indicator of economic activity and a precursor to an impending recession. During economic booms, the money supply tends to grow rapidly as commercial banks make more loans. On the other hand, money supply growth tends to slow before a recession. It is important to note that the money supply does not need to actually contract to indicate recession and boom-bust cycles. As Ludwig von Mises has shown, recessions are often preceded by only a slowdown in the growth of the money supply. **But the fall into negative growth seen in recent months does help to illustrate the extent and pace of the apparent decline in money supply growth. According to Mises Institute, a research organization, this is usually a red flag for economic growth and employment. **The fact that the money supply is shrinking is so striking because it has rarely contracted so sharply. Since the April 2022 peak, the money supply has fallen by about $2.8 trillion (or 15.0 percent). Proportionally, the decline in the money supply since 2022 is the largest since the Great Depression of the last century. It was once estimated that before the Great Depression, the money supply fell by 12% from a peak of $73 billion in mid -1929 to $64 billion at the end of 1932. Despite the recent decline in the total money supply, the trend in the money supply is still well above the level of the 20-year period from 1989 to 2009. To return to this trend, the money supply would have to be reduced by at least another $4 trillion, or 22%, to below $15 trillion.! Figure 2.jpg Since 2009, TMS money supply has grown by nearly 184 per cent and M2 supply has grown by 146 per cent during this period. Of the current $18.8 trillion money supply, $4.5 trillion, or 24%, has been created since January 2020. **Money supply of up to $12.2 trillion has been created since 2009. In other words, nearly 2/3 of the money supply was created in the last 13 years. **At such a total, a 10% decline would have only a limited negative impact on the huge edifice of newly created money. * * Institute Mises believes that the 10% decline in supply growth has little impact compared to the total. The U.S. economy is still facing the massive money surplus of the past few years, which is part of the reason why, after 14 months of slower money supply growth, we have yet to see a significant slowdown in the labor market. **** Still, the slowdown in monetary policy has been enough to significantly weaken the economy. In particular, a number of recent recession indicators have sounded the alarm: the Federal Reserve Bank of Philadelphia's manufacturing index is in recession territory, as are survey data conducted by the Empire State Manufacturing Survey, coupled with the continued deterioration of the leading indicator index and the intensification of the inverted yield curve pointing to a recession. In terms of data, personal bankruptcy filings in the United States rose 68% in the first half of this year, and the number of temporary workers fell year-on-year. These usually indicate that an economic recession is coming. **Despite the sharp tightening of the money supply + soaring interest rates, the Fed is unlikely to return to easing. However, once the new injection of money fades, the inflation boom starts to turn into a depression, and we are seeing this now. Not surprisingly, after more than a decade of quantitative easing, financial repression and the general pursuit of easy money, the Fed has finally significantly slowed the pace of money creation. As of July, the Fed had raised the federal funds rate to 5.50 percent, the highest level since 2001. This means that short-term interest rates have also risen in general. In June, for example, the yield on the 3-month Treasury note is still close to its highest level in more than 20 years.! Figure 3.jpg However, without sustained access to easy funding at near-zero interest rates, banks will be less enthusiastic about lending and many marginal firms will no longer be able to avoid financial distress by refinancing or obtaining new loans. For example, trucking company Yellow Corporation (YELL.US) declared bankruptcy and will lay off 30000 workers. Tyson Foods (TSN.US) announced this week that it will close four chicken processing plants to cut costs, and 3000 workers may lose their jobs as a result. These companies have been experiencing financial problems for years, but rising interest rates rule out the inevitable additional delays. As more and more companies face the reality of higher interest rates, we will see more of this. Another clear sign of a slowdown is that state and local taxes have been falling. At the same time, credit supply is at its tightest level in a decade as lenders are spooked by a cash crunch that has made it increasingly difficult to get home loans. Meanwhile, the average rate on a 30-year mortgage rose in July to almost the highest point since 2002. One of the most troubling indicators is that credit card debt is soaring even as interest rates soar. As of May 2023, commercial bank interest rates rose to their highest level in at least 30 years, and credit card debt and other revolving loans reached record highs. **These factors all point to a bursting bubble. This situation is unsustainable, but the Fed cannot change its current tightening course if it does not want to re-ignite a new round of soaring inflation. **Given the rising cost of living, any price spike would be particularly problematic. Both new and used cars are becoming increasingly unaffordable. Ordinary Americans face a similar problem when it comes to housing, and according to the Federal Reserve Bank of Atlanta, the housing affordability index is currently the worst since the housing bubble of 2006. **If the Fed does the opposite now and accepts a new flood of money, prices will only spiral upward. That could have been avoided, but now the average citizen is paying the price for a decade of easy monetary policy cheered by the profligate on Wall Street and in Washington. The only way to put the economy on a more stable long-term path is for the Fed to stop pumping new money into the economy. This means that the money supply falls and the economic bubble bursts. But it also laid the foundation for the real economy, which, after all, is not built on endless bubbles, but on savings and investment, rather than consumption through artificially low interest rates and loose monetary policy. The money supply has shrunk sharply, and the &#34;strongest firepower&#34; of U.S. stocks has stalled? Since the beginning of this year, large technology stocks have started an epic rebound, driving the benchmark index of U.S. stocks, the S &amp; P 500 Index, into a &#34;technical bull market&#34;, with an increase of more than 17% during the year. It once achieved its best first-half performance since 1927. Since the low point, the increase has exceeded 22%; despite today's correction, the Nasdaq 100 index, known as the &#34;technology stock vane&#34;, is still up nearly 40%. However, with the money supply, the source of the amount of money that drives U.S. stocks, shrinking sharply, and U.S. stock valuations already at high levels, the rally seems unsustainable.! 1691718877(1).png Barry Bannister (Barry Bannister), chief stock strategist at Stifel, who accurately predicted the rebound trend of US stocks in the first half of this year, said recently that the S &amp; P 500 index will be basically the same as the current level by the end of this year after experiencing an epic rebound in the first half of 2023, mainly due to persistent inflation.
Bannister predicts that the S &amp; P 500 index will fall into a &#34;sideways shock consolidation&#34; in the second half of 2023, and he expects to close at around 4400 points by the end of the year. Steve Hanke (Steve Hanke), a well-known American economist and professor of applied economics at Johns Hopkins University, who is known as the &#34;money doctor&#34;, recently warned that investors in the US stock market are too complacent and completely ignore the risk of a decline in the money supply, and these investors may be caught off guard by the recession early next year. * * Black Swan Fund Company's Universa Investments helm Mark Spitznagel (Mark Spitznagel) recently said that * * * overvalued U.S. stocks could not escape the wave of selling. He warned that the U.S. stock valuation and government debt level were too high, and the carnival would end in &#34;disaster&#34;. He stressed that the jump of the &#34;Buffett index&#34; (Buffett Indicator) to 171 percent was important evidence of the overvaluation of U.S. stocks. Economist Hank cautioned investors against the&#34; soft landing &#34;argument, which implies that the Fed can control inflation without dragging down the economy or causing unemployment to soar. Hanke has provided economic policy advice to several heads of state and finance ministers, thus earning him the title of &#34;Currency Doctor. &#34;Representatives of soft landing ideas tend to say: the labor market is still strong, U.S. stocks are performing very strongly, the economy seems to be doing well now, inflation is falling, and we will achieve a soft landing.&#34; &#34;But I will say that we have not yet seen a decline in the money supply hit the real economy, and because of the usual lag, I expect to see it in early 2024. &#34; Hanke said in a recent interview. The economist noted that the U.S. money supply grew 26 percent in a year at the peak of the new crown epidemic, but has been shrinking in recent months. He stressed that it usually takes six to 18 months for the real economy to feel the impact of monetary contraction. In Hank's view, the reduced money supply, coupled with the Fed's reduction in the size of its balance sheet and the possibility of further interest rate hikes, bodes well for the outlook for the U.S. economy * *. &#34;Money is the fuel for the economy, and we used to have a lot of excess fuel. Now the excess fuel in the tank has been pumped dry, and we can only rely on lampblack now.&#34;

Last November, for the first time in 28 years, the year-on-year growth rate of the US money supply turned negative, and it has been stuck in a contraction zone ever since.

The "strongest firepower" that drove the rise of US stocks is no longer continuing! US currency supply has been shrinking for 8 consecutive months.