“Money makes the world go ‘round – Still don’t nothing move but the money” – Cabaret the Musical (1990s revival)
Money – and the growth of money supply – influences everything in the capital markets and the economy. Booms, busts, recessions, recoveries. Fear and greed alike. All of this links back to the availability and growth of money and its supply. The chart below is both great and misleading. It’s great because no one likes going back and reliving the Panic of 1837 like me. It’s what I do. It’s misleading because the Federal Reserve wasn’t born until 1913 (in Jekyll Island, GA for those wanting to know) and the gold standard was the standard until the 1970s. Monetary policy is a different beast today than it was 50 years ago. Policy responses to crisis can be both bigger and quicker than when operating under a gold standard. In a world in which speed matters, global central banks have proven they now can go fast, in both directions.
Over the past 80 years we have had three big boom periods of money growth (M2 money supply growth to be precise) and three subsequent contractions of such. The early 1930s saw a rapid growth in money supply as the New Deal responded to the Great Depression. That was washed down by the recession of 1937. The 1940s saw money supply growth explode due to WWII – and then came the recession of 1948-1949. And we have the explosion of money brought on by COVID in 2020/2021. The timing of the next recession seems both imminent and widely expected. We are working off the excess money printing in 2020/2021 and are doing such at a very fast pace. And while we may get a recession, it is likely to be short and shallow. At the end of the day the absolute level of money is higher today than pre-COVID. It’s tough to have a deep and dark recession when liquidity still abounds and both personal and corporate balance sheets are in good order.
Money – not love – makes the world go round.
Source: GFD, Bloomberg Finance LP, Deutsche Bank as of April 25, 2023
Chief Investment Officer
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