There’s good news from “always and everywhere” land, where tautologies masquerade as wisdom and complex phenomena are reducible to axioms so simple that one needs just 900 pages to explain them.

That sentence is chock-full of good jokes. Don’t let them fly away unnoticed.

Had you consulted M2 growth back in early 2021, you might’ve come away apprehensive about inflation which, at the time, still looked benign. CPI is backward-looking and M2 was trying to tell us something about the future. Now, it’s telling us the opposite story about inflation.

If we discovered the limits of M2 growth vis-à-vis the worst bout of developed market inflation in a generation, then we now have cause to believe inflation is poised to collapse commensurate with the sharp decline in M2.

As a quick aside, you don’t have to be a monetarist (or even be familiar with the term), to know there’s a point beyond which increasing the money supply should be expected to produce inflation. If you’re going to claim profundity based on the self-evident, a prerequisite is that the rest of humanity hasn’t yet come around to the self-evident part. Think: Darwin.

Monetarism didn’t fall out of favor because economists failed to understand that completely unbridled money-printing wasn’t feasible, anymore than historical sovereigns failed to understand that incremental debasement of coin money would eventually be ruinous. When it comes to money creation and inflation, it’s not a matter of failing to grasp the self-evident notion that there are thresholds and constraints. Rather, it’s a matter of determining where the thresholds are, identifying the constraints and, the hardest part of all, resisting the temptation to push the issue.

Almost invariably, that purported “aside” will be the most interesting takeaway for readers, but I didn’t set out in this brief piece to make a point about Friedman’s or monetarism’s claims to profundity. Rather, I wanted to update the forward-looking signal from M2 for CPI in light of the inflation debate and the begrudging acknowledgment from some policymakers that although targeting the money supply isn’t a viable strategy for conducting a nation’s economic affairs, we should at least pause to consider the issue if we intend to engineer wholly anomalous outcomes.

Note that “pause” needn’t be taken entirely literally. I’m not suggesting policymakers in advanced economies should’ve waited to deliver assistance during the early days of the pandemic, for example. I’m simply saying that once the stimulus was delivered, someone, somewhere, should’ve suggested that the implications for the money supply might breach the above-mentioned thresholds, and as such, it may be prudent to preempt any side effects once the immediate crisis passed.

If you peruse finance-focused social media, you’ll discover that many of those who spent 2021 insisting that the explosion in the money supply was destined to cause inflation, and who spent 2022 gloating about the purported accuracy of that forecast, haven’t revisited the issue recently. That’s because such folks are only interested in macro and markets to the extent they can garner attention for themselves predicting the worst. When the metrics they cite in the course of predicting doom and gloom stop cooperating, they simply abandon those metrics and charts in favor of some new set of scary visuals.

Ironically in that context, it’s still possible to use the trajectory of M2 (or a corollary) to make a bearish argument, only not about inflation, but rather about corporate earnings as inflation recedes. “[The] liquidity unwind is starting to bite,” BofA’s Savita Subramanian said, in a note dated January 22. “Cash is drying up amid the tightening cycle.”

“M2 money supply fell 2% from the March peak, the biggest decline in history since 1959 [and] the S&P 500 cash level (ex-Fins) also fell 15% in Q3 [when] Energy and Health Care were the only sectors with cash build,” she went on to say, adding that in Q4 results, banks cited “rising deposit costs amid rate hikes and QT.”

Even if a US recession is delayed, recent data suggests “pressure is building, especially in goods, which represent 50% of S&P 500 earnings,” Subramanian wrote, blaming negative operating leverage amid “waning pricing and lower sales volume” for the largest six-quarter drop in BofA’s Corporate Misery Indicator since 2009.