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ANOTHER Screaming Indicator Warns of Recession…

by Rachel MillsMarch 20, 2024

Are you aware of the M2 money supply contraction?

M2 is a measure of money supply that includes cash, checking account balances, and other types of deposits that can be easily converted to cash, like CDs. Usually this measure expands at a steady clip. It's as predictable as the sun rising in the east.

However, sometimes the sun gets eclipsed by the moon. And, once in a blue moon, money supply contracts.

It has actually only happened 5 times in the last 300 years.

And it is an ominous sign. According to research conducted by Reventure Consulting CEO Nick Gerli, drawing on data from the U.S. Census Bureau and the Federal Reserve, there have been only five instances in history where the M2 money supply declined by at least 2%: 1878, 1893, 1921, 1931-1933, and from July 2022 to the present in 2024. Gerli warns that the money supply is officially contracting, a phenomenon that has occurred only four times in the last 150 years, each time preceding a depression with double-digit unemployment rates.

When the M2 money supply contracts, it means that there is a decrease in the amount of money circulating in the economy. This can have several implications for the economy. One is of course, decreased liquidity. With less money available, individuals and businesses may find it more difficult to access credit and funds for spending and investment purposes. This can lead to decreased consumer spending, reduced business investment, and potentially slower economic growth.

Interest rates are also affected by a decrease in money supply. In response to a contraction in the money supply, the Federal Reserve may feel pressure to lower interest rates to stimulate borrowing and spending, thereby injecting more money into the economy.

One might suspect this would be great for the high inflation we're experiencing, but hold on. When there is less money circulating in the economy, there is less demand for goods and services, which can put downward pressure on prices. THIS is one reason a contraction in M2 has historically led to double digit unemployment.

So maybe prices come down... maybe. That's complicated. But jobs could also vanish. A LOT of jobs.

Another concerning money-related indicator is commercial bank credit. Since data tracking began in January 1973, there have been only three instances where commercial bank credit declined by at least 2% from its peak:

In October 2001, during the dot-com bubble, commercial bank credit fell by 2.09%.

In March 2010, shortly after the Great Recession, commercial bank credit experienced a 6.94% decline.

In November 2023, just a few months ago, commercial bank credit dropped by 2.07%.

Recessions typically hit corporate earnings pretty hard, which can lead to declines in the Dow, S&P 500, and Nasdaq indices. In fact, during the previous two significant contractions in commercial bank credit, the S&P 500 lost roughly half of its value.

What can you do?

Do what the big guys do. The biggest players on the world stage are the central banks and they are quietly buying record amounts of gold. Why?

Central banks buy gold as part of their broader reserve management strategy to diversify their savings and reserves, safeguard financial stability, preserve wealth, and maintain confidence in their economic position. What they do on a macro level is available to you on a micro level, and the benefits are not that different!

The best time to buy is today! Call us at 800-450-9670

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