Expert Warns of Possible Deflationary Depression as Money Supply Contracts: ‘Pay Attention to QT and the Money Supply’

During the Covid-19 pandemic, central banks such because the U.S. Federal Reserve loosened fiscal and financial coverage. Now, these similar monetary establishments are seemingly partaking in quantitative tightening (QT) practices. According to Nick Gerli, CEO and founding father of Reventure Consulting, “the money supply is officially contracting.” This has solely occurred 4 instances within the final 150 years. Gerli warns that each time it happens, a despair takes place with double-digit unemployment charges.

The Contraction of Money Supply and its Impact on the Economy

Several market analysts and economists are unsure about the way forward for the economic system, whereas many imagine issues will soon get worse as a consequence of important inflation and failures in central planning. When the Covid-19 pandemic hit, the U.S. authorities and lots of different nation-states worldwide financed trillions of dollars in debt to maintain the economic system. The debt has grown to colossal ranges, and lots of imagine it might sink a number of Western economies. Speculators insist that it will hurt the greenback and that solely laborious belongings will survive the fallout.

In a current interview on the 2023 BMO Metals, Mining, & Critical Minerals Conference, Rob McEwen, government chairman of McEwen Mining, mentioned, “Hard assets will increase in value as the dollar drops in relative value to other currencies because governments are irresponsible. They steal from their citizens by printing excess money and borrowing in ways they shouldn’t … Look at the amount of debt most of the Western world has right now; it’s enormous.”

On March 8, 2023, Nick Gerli, CEO and founding father of Reventure Consulting, warned that the cash provide is contracting. ‘The cash provide is formally contracting,’ Gerli mentioned Wednesday. This has solely occurred 4 earlier instances within the final 150 years, and every time, a despair with double-digit unemployment charges adopted.

The Reventure government insists that when the cash provide contracts whereas inflation rises, it creates a “nasty combination” as a result of there are fewer {dollars} obtainable to pay for increased costs, finally resulting in a deflationary crash.

Gerli added:

This is precisely what occurred within the despair of 1921. (NOT the Great Depression). This occurred after WWI and the Spanish Flu. Where there have been years of excessive inflation/cash provide progress. And then…WHAM. 11% Deflation and the unemployment charge skyrocketed. All it took was a -2% contraction within the cash provide in 1921 to trigger that deflationary despair.

The Reventure government famous that there has already been a 2% contraction in 2023. Gerli says that this means that ‘the resilience of our economic system and the present inflation may not be as sturdy as individuals suppose.’ However, Gerli admits that there’s nonetheless a big sum of money circulating within the monetary system in 2023, with the cash provide being about 35% increased than it was pre-pandemic, at $21 trillion. Despite this, historical past exhibits that just a bit nudge and despair and deflation might mount.

“[The] historical record is clear: Depressions/Deflation don’t need a ‘linear’ decrease in money supply to occur— It just needs to be a little bit. 2-4% contraction YoY — And then problems occurs,” Gerli added.

Gerli thinks that individuals are too focused on rate hikes and never listening to quantitative tightening (QT) practices and the cash provide. He thinks that on the present tempo, the cash provide will shrink extra whereas recession fears are mounting and inflation continues to persist. “That’s how you get a system meltdown and a deflationary depression,” Gerli stressed. The Reventure government added {that a} deflationary despair in 2023-24 is “not a guarantee.” Because governments are watching diligently, there’s a risk they could “attempt to print money again, send stimulus checks, and re-ignite inflation/economy,” according to Gerli.

What do you suppose the federal government ought to do to deal with the attainable contraction of the cash provide and the specter of deflationary despair? Share your ideas within the feedback beneath.