IMF and money supply flashing alarm bells – October 2019?

Money Supply

The International Monetary Fund (IMF) is predicting global economic growth will slow to its weakest level since the 2008 financial crisis in its third revision of its 2019 forecast.

The U.S. GDP growth rate forecast was cut from 2.6% to 2.4%. The Eurozone area is expected to see 1.2% growth, down from 1.3%. China’s forecast saw a downward revision from 6.2% to 6.1%. Cumulatively this reduces the global GDP by 0.8% by 2020. This is not a crash but certainly sounding alarm bells.

The IMF has a bad habit of constantly underestimating growth rates only to revise and revise to actual numbers. We are heading into the U.S. 2020 presidential and the recent past economy has been good. This has been the single best issue going for President Trump’s reelection – if this changes, it could spell trouble. Hence we need to watch it close. Another alarm bell we see is the money supply. News Forecasters asks, what does this tell us about where the economy is going over the next 6 to 18 months?

Money Supply 09.2019

You can see from the inset chart inflation rates are sinking along with GDP growth rates. Recently (last 6 months) money supply has surged, rising from 12-year lows to combat the slowing GDP and inflation negative performance.

Global Central Banks have sprung into action. The Fed recently has reduced interest rates and has said it will restart QE purchases. The EU’s ECB and China are doing similar activities.

A monetarist is an economist who holds the strong belief that the economy’s performance is determined almost entirely by changes in the money supply. Monetarists postulate that the economic health of an economy can be best controlled by changes in the monetary supply, or money, by a governing body. News Forecasters is a strong believer in monetarist theories and how governments have a large influence on economic outcomes. Furthermore, the value of a fiat currency can be stated simply with the formula:

Value of a currency = GDP / Money Supply

The value of a currency is often an indicator of how a country is doing. Reduce the GDP and increase the money supply the value of money drops. Do note that all currencies have this dynamic – an issue of being the best or worst verses the other fiat currency. When value of money drops it benefits the rich, as the rich can borrow at today’s money value and pay back the money at a lower tomorrow’s money value. This is the single biggest contributor to wealth inequality leading to stagnant – zombie economies.

It appears to News Forecasters that the Trump administration in the short run is busy increasing the money supply by encouraging its attacks on the Fed to be easier with its monetary policy in effort to boost GDP and Jobs – validated with this recent rise in the money supply seen. This is in preparation for the U.S. presidential 2020 elections. As of today, our view is that no recession is coming prior to the 2020 elections – this assumes no other special negative event would occur.

As explained before in – zombie economies – longer-term after the election, though contraction of the money supply may occur, the more likely scenario is that currency debasement continues (along with increases in wealth inequality) – and even accelerates. Furthermore, the acceleration of inflation at some point will also occur – though most likely a few years away.

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