The Cash Is Drying Up
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
so… back on Team Transitory?
I jest but, while I was wrong about the time it took to digest supply chain bottlenecks and possibly overgenerous pandemic bailouts, I am still not convinced about those who insist we’re in a new regime of higher inflation.
The one thing that could justify that is demographics in the US. Older pop = higher wages for the remaining workers. But already immigration seems to be increasing?
Onshoring might also be a factor but if we’re friend-shoring in Vietnam etc, is it really going to be so much more expensive than China? And with robots continuing to make headways in manufacturing…
Very well written. M2 is a great indicator, so why ignore it? Much like the inverted yield curve…
The original FY 2023 budget for the US Federal government had a projected deficit of $1.2T.($5.8T of spending). With the latest $1.7T funding bill, the $1.2T estimate is now significantly higher. M2 might be declining, but the US government will continue to print money (which will eventually get added to M2) at record amounts. Just wait until we get a few years closer to the estimated date that the SSA will run out of money (2034). The US government will be printing even more.
I never forget that the best way for the US government to minimize its existing debt balance (since they likely won’t repay that) is to inflate away!
And V is being increased from that portion of our economy which is transacted in unreported cash. Although impossible to calculate, most estimate this to have been 12-13% of our economy (7% is illegal drugs). However, I believe this percentage is increasing and will continue to do so. With our aging population who needs help to stay in their homes, this segment of our economy is not shrinking. The going rate for an in home agency who supplies in home (not nursing) care is about $35/hour. The unreported cash rate is about $20/hour for a retired nurse, who is also willing to do some cleaning, shopping and laundry. Illegal immigrants will also need to be paid in unreported cash.
Velocity of the M2 is rather low, historically.