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Michael Pollaro

Michael Pollaro

Michael Pollaro is a retired Investment Banking professional, most recently Chief Operating Officer for the Bank's Cash Equity Trading Division. He is a passionate free…

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Money Supply Booming, Seeds of the Next Greater Recession

The next Great Recession is in the making. The money supply trends say so. And it is looking more and more like this next Greater Recession is going to be one for the ages...

The money supply, as measured by THE CONTRAIAN TAKE's broad (and preferred) TMS2 metric (TMS for True "Austrian" Money Supply), posted a 14.6% year-over-year increase in February, making this the 39th consecutive month of double digit year-over-year rates of monetary inflation. All told, TMS2 is up a huge 50% over those 39 months. Even more interesting is what those TMS2 metrics were leading up to the housing boom turn credit bust turn Great Recession - 37 consecutive months for a cumulative increase of 50%.

Here's a look at the monetary record through a TMS lens beginning year 2000...

US Money Supply Aggregates, TMS2 Components, Federal Reserve Credit

So what's this got to do with the next Great Recession. Isn't this monetary grease what the economy needs to heel and grow?

Well, in stark contrast to what mainstream economist and market analysts proclaim, this is not what the U.S. economy needs to heel and grow. No, all this monetary largesse will do is GUARANTEE the next Great Recession. To Austrians, ALL monetary "booms" - booms founded on the creation of central bank money (Base Money) and bank-issued on-demand deposit liabilities in excess of bank reserves (what Austrians call Uncovered Money Substitutes) must ALWAYS end in economic busts, roughly equal in size and intensity to the preceding monetary boom. By distorting interest rate and price signals and as a consequence creating malinvestments that must eventually be liquidated, monetary booms ALWAYS end in economic busts.

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