The US economy is likely heading towards an economic downturn, or bust, due to irresponsible government economic policies and a significant decline in the growth rate of the money supply. This decline has adverse effects on various sectors that thrived during a prior phase of expansive monetary policy.
1. Declining Money Supply Growth:
• The annual growth rate of the money supply plummeted from 79% in February 2021 to -7% by May 2023. This rapid decline is beginning to negatively impact economic activities that had expanded due to earlier increased money supply rates.
• A significant drop in money supply growth indicates that inflating economic bubbles might burst, as they lose the funding that allowed them to grow.
2. Bubble Activities at Risk:
• Many new projects, particularly in trendy areas like artificial intelligence (AI), benefitted from previous loose monetary policies, but may no longer be financially viable.
• The health of these projects is linked to the availability of savings, which is decreasing. If the money supply continues to shrink, funding for these ‘bubble activities’ will dwindle, leading to potential failures.
3. Importance of the Subsistence Fund:
• The article introduces the concept of a subsistence fund, which consists of private savings and is crucial for sustaining the production of goods and services.
• A larger subsistence fund allows for longer-term and more complex production processes, beneficial for overall economic growth. Conversely, a weakened fund limits what projects can be undertaken.
4. Role of Money:
• Money serves as a medium of exchange rather than a direct source of economic sustenance. Real production capability is tied to goods produced and transformed through labor, not merely money itself.
• Effective use of money helps channel savings into capital investments, which foster wealth generation.
5. Current Economic Pressures:
• Government spending has reportedly increased dramatically, suggesting an oppressive economic environment for private saving and investment.
• The pressures from the government’s fiscal policies, combined with restrictive monetary policies, are likely eroding the capacity for sufficient private savings to support current investment levels.
6. Looking Ahead:
• The decline in the growth rate of private savings is expected to continue, adversely impacting future investments in both existing and new economic activities.
• If aggressive monetary expansion occurs (e.g., lowering interest rates further), it will exacerbate the problems with savings and distort market signals more.
7. Recommendations for Stabilization:
• To stave off a predicted economic crisis, a reduction or end to manipulative central bank policies and significant cuts in government spending are required.
• Without such changes, the sustainability of current economic projects is uncertain, and economic growth would further be curtailed.
In summary, the article posits that the US economy faces a serious risk of entering a negative economic phase due to sharp decreases in the money supply growth and unsustainable bubble projects reliant on prior monetary expansions. As various factors undermine the stability of the subsistence fund, the prospects for continued economic growth appear bleak. A strategy of reducing government expenditure and limiting central bank interventions is proposed as a necessary remedy to prevent imminent economic collapse.
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