Central banks are fighting the wrong war – the West’s money supply is already crashing

 We know today that the US economy went into recession in November 2007, much earlier than originally supposed and almost a year before the collapse of Lehman Brothers. But the Federal Reserve did not know that at the time. 

Fed officials later grumbled that they would not have taken such a hawkish line on inflation in 2008 – and therefore would not have set off the chain reaction that brought the global financial edifice crashing down on our heads – had the data told them what was really happening. 

Monetarists are again crying apocalypse. They are accusing central banks of unforgivable back-to-back errors: first unleashing the Great Inflation of the early 2020s with an explosive monetary expansion, and then swinging to the other extreme of monetary contraction, on both occasions with a total disregard for the standard quantity theory of money. 

The eurozone is following with a lag. This threatens to set off a North-South split and again expose the underlying incoherence of monetary union. 

Personally, I am more Keynesian than monetarist, but the monetarists were right in warning of an unstable asset boom in the mid-Noughties, they were right in warning about the pre-Lehman contraction of money that followed, they were right about pandemic inflation, and I fear that they about right the monetary crunch developing in front of our eyes.

We are told that almost “nobody” saw the global financial crisis coming in September 2008. So at the risk of journalistic indecency, let me recall the news piece that we ran in The Telegraph in July 2008. It cites several leading monetarists.  

“The money supply data from the US, Britain, and now Europe, has begun to flash warning signals of a potential crunch. Monetarists are increasingly worried that the entire economic system of the North Atlantic could tip into debt deflation over the next two years if the authorities misjudge the risk,” it began. 

https://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/2793075/Monetarists-warn-of-crunch-across-Atlantic-economies.html

Ambrose Evans-Pritchard Telegraph Febnuary 2023

Central banks are fighting the wrong war – the West’s money supply is already crashing (telegraph.co.uk)

The Fed is not looking at this flashing red signal. It has tied its credibility - and the fortunes of the US economy - to two sets of lagging indicators: jobs and core inflation.

Real M1 money in the eurozone is contracting hard. But Buba wants to scorch the earth and sough salt in the ground for Catharginian certainty.

Ambrose Evans-Pritchard Telegraph 3 January 2023

https://englundmacro.blogspot.com/2023/01/great-disinflation-2023-real-cost-of.html

Varför min sida om Finanskrisen heter hedgefunds.htm

Finanskrisen och därmed eurokrisen tog sin början i Frankrike, när tre hedgefonder tillhöriga Frankrikes största bank, BNP Paribas, inställde betalningarna i augusti 2007.

Den dåvarande chefen för ECB, Jean-Paul Trichet,  pumpade raskt in 200 miljarder euro för att rädda bankerna.

På den vägen är det. Läs om detta här

Det var en händelse som jag tyckte förtjänade en ny egen sida på min website.

https://englundmacro.blogspot.com/2013/08/varfor-min-sida-om-finanskrisen-heter.html