The question is how is this possible? After all if money printing can grow the economy then why not to print plenty of it and make massive economic growth? By doing that, central banks could have created an everlasting prosperity for every individual on the planet.
For most commentators the arrival of a recession is due to unexpected events such as shocks that push the economy away from a trajectory of stable economic growth. Shocks weaken the economy i.e. cause lower economic growth so it is held.
We suggest that as a rule a recession emerges in response to a decline in the growth rate of money supply. Usually this takes place in response to a tighter stance of the central bank.
As a result various activities that sprang up on the back of the previous strong money growth rate (usually this emerges because of loose central bank monetary policy) come under pressure.
These activities cannot support themselves – they survive because of the support that the increase in money supply provides. The increase in money diverts to them real wealth from wealth generating activities. Consequently, this weakens these activities i.e. wealth-generating activities.
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