You Think the Global Economy Is Brightening? Beware: The Big Hit Is Yet to Come
Relief is spreading among economic analysts and stock market experts. Energy prices are decreasing noticeably. The energy supply this winter seems secure; in Europe, government support for consumers and producers is available if needed. China is turning away from its zero-covid policy, and production is ramping up again. High goods price inflation is still a major concern for consumers and producers, but central banks are delivering at least some interest rate hikes to hopefully reduce currency devaluation. So should we bid farewell to crisis and recession worries? Unfortunately, no.
Because there is an overall economic development that is tantamount to a storm but remains unnamed by many experts and investors. And that is the global contraction of the real money supply. What does that mean? The real money supply represents the actual purchasing power of money. For example: You have ten dollars, and one apple costs one dollar. So with your ten dollars, you can buy ten apples. If the apple price increases to, say, two dollars per piece, the purchasing power of the ten dollars falls to five apples. It becomes obvious that the real money supply is determined by the interplay between the nominal money supply and the prices of goods.
The real money supply in an economy can decrease when the nominal money supply goes down or goods prices rise. This is exactly what is currently happening around the world. The chart below shows the annual growth rate of the real money supply in the Organization for Economic Cooperation and Development (OECD) from 1981 to October 2022. The real money supply recently contracted by 7.3 percent year on year. There has never been anything like this before. What is the reason?
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