Lede

Economists are warning of an impending recession and deflation as money supply growth collapses in the UK, eurozone and US, contradicting mainstream consensus that the global economy is picking up.

Summary

• Money supply growth rates in the UK, eurozone, and US have collapsed, signaling a recession and deflation, according to British economists Tim Congdon and Simon Ward.
• Growth and inflation are a function of the quantity of money in circulation and its velocity, say monetarists like Congdon and Ward.
• Central banks' quantitative easing programs and sharp rate cuts in the pandemic led to double-digit money supply growth across the US and Europe. A year later, inflation was above target and on course for 10%.
• In the eurozone, M3 broad money rate of change is the weakest since 2010, and M1 narrow money is negative for the first time since 1999.
• In the UK, real M4 growth has fallen steeply below trend, and the annual broad money growth rates in the UK and eurozone are well below their 2010s averages associated with below-target inflation.
• Falling money supply may anticipate deflation but it may also simply reflect the recent banking crisis and instability in financial markets caused by the aggressive rate-rising cycle.
• To tackle the highest inflation in four decades, central banks have raised rates at the fastest pace since the late 1980s and are shrinking QE to cancel the money they created, but monetarists say they should have stopped hiking some time ago.
• Congdon and Ward call for positive money growth to be restored, and Ward wants officials to stop shrinking their balance sheets through "quantitative tightening."
• BOE officials say it is wrong to blame QE for soaring price growth, and there is no separate "money" channel that can unleash inflation.