It is clear to pretty much everyone that the rapid monetary expansion of the recent past needs to be undone.
It is less clear what pace is appropriate.
The expansion was fast.
The current reduction is fast.
Maybe too fast
In the past, when there was an economic problem (dot.com, 9-11, “housing” bubble etc.) the Fed responded by expanding the money supply, aka “stimulated the economy.”
But the past stimulations were very very small compared to the COVID response. (see chart below)
The COVID response was a ginormous risky bet. Since they expanded M2 so much so quickly to shrink M2 quickly now might be the best response. Still (chart above) it is scary to think that last time M2 contracted this quickly was 1932.
Inflation is consuming the supply because too many households were near paycheck to paycheck before the inflation kicked in. And the money market and CD portion of the M2 measure is going to be weighted towards seniors, who are really feeling the effects of inflation, but more often unable to earn extra, thus having to spend down savings. Match this up with the increase of consumer debt because folks are also using their credits cards to make ends meet for basic essentials.
Can’t wait to see the M3 numbers.
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Well, someone is trying to spend us into prosperity
Government is the key to prosperity, along with all the world’s poverty. Just ask any Democrat.
This chart provides some perspective
To understand this I keep coming back to post #2 above.
The (Fed) monetary policy response to COVID was way way overdone compared to previous responses to previous crises. So, maybe it is perfectly appropriate that they undo their precious action with this seemingly extreme speed.
I dunno.
It’s a lot easier to say where they have to go, than it is to say how fast they should drive there.
