6% US money supply fall heralds double dip recession
Posted on 01 May 2010 with no comments from readers
The US saw lower GDP growth than expected in the first quarter but Shadow Statistics’ economist John Williams says growth is actually going to be negative again this year because the broad money supply is down six per cent over a year ago.
‘Whenever the broad money supply adjusted for inflation has turned negative year over year, the economy has gone into recession, or if it already was in a recession, the downturn intensified,’ he told The Gold Report.
Past recessions
‘You saw it in the terrible downturn of ‘73 to ‘75, the early ’80s and again in the early ’90s. In December of 2009, annual growth in real M3 turned negative. It’s now at a record low in terms of decline, down more than six per cent year over year.
‘What that suggests is that in the immediate future you’re going to see renewed downturn in economic activity… with about a six-month lead-time.’
He notes that ‘the implications for that are extraordinary, because the projections on the federal budget deficit, a number of the state deficits, and the solvency and stress tests for the banking system all were structured assuming positive economic growth in the two to three per cent range for 2010.’
Mr Williams is not making this up but his specialty is looking at statistical indicators that are often ignored. ArabianMoney certainly recalls the negative monetary growth of the early 1990s and the UK’s then worst post-war recession.
What recovery?
This also chimes with the many reports carried on this website about misleading hype about a very fragile recovery, particularly in the US, although to be fair the Asian economies now seem to be overheating. Then again European recovery is equally fragile if not questionable.
The investment implications are important. Stock markets tend to look about six months forward, and recent weakness tends to suggest they do not like what they foresee.
Mr Williams likes gold, silver and currencies like the Canadian and Australian dollars and the Swiss Franc. He thinks preserving wealth is the key to being able to pick up bargains later.
But investors do need to watch out for hyperinflation as the US goes for a second and third bailout package. Anything except cash and bonds would then rise in price if not relative value.
