Tuesday, August 26, 2008
Monthly data for July show that the broad money growth has almost collapsed
Sharp contractions in the money supply and recession are two spokes on the same wheel. When the money supply shrinks, there's less economic activity, and the economy slows; it's as simple as that. An article in this week's UK Telegraph by Ambrose Evans-Pritchard shows that the country is sliding inexorably into the jaws of a deep recession. The persistent credit-drain from rising foreclosures and deleveraging financial institutions is shrinking the money supply. Now it's visible in the data. Bernanke's low interest rates haven't stopped the hemorrhaging The whole "stimulus" plan backfired. Americans did the responsible thing and used the money to pay off debts or stash it in savings instead of than wasting it Walmart or Target on more useless knick-knacks.