US Monetary Crisis: The Crunch Time. Set the Crash-alert Flags at Half-mast: "Sharp contractions in the money supply and recession are two spokes on the same wheel. When the money supply shrinks, there's less economic activity, and the economy slows; it's as simple as that. An article in this week's UK Telegraph by Ambrose Evans-Pritchard shows that the country is sliding inexorably into the jaws of a deep recession.
From the UK Telegraph:
'The US money supply has experienced the sharpest contraction in modern history, heightening the risk of a Wall Street crunch and a severe economic slowdown in coming months. Data compiled by Lombard Street Research shows that the M3 ''broad money' aggregates fell by almost $50bn in July, the biggest one-month fall since modern records began in 1959.
'Monthly data for July show that the broad money growth has almost collapsed,' said Gabriel Stein, the group's leading monetary economist.' (Ambrose Evans-Pritchard,'Sharp US Money Supply contraction points to a Wall Street crunch ahead', UK Telegraph)
The Telegraph confirms what many of the doomsayers have been saying for more than a year now; we're facing a severe bout of deflation. The persistent credit-drain from rising foreclosures and deleveraging financial institutions is shrinking the money supply. Now it's visible in the data. Bernanke's low interest rates haven't stopped the hemorrhaging; deflation is spreading like Kudzu. According to Evans-Pritchard, 'The growth in bank loans has turned negative' (while) 'the overall debt burden in the US economy is currently at record levels, raising concerns that a recession - if it occurs - could set off a sharp downward spiral.'"
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