Shrinking the money supply has helped the Feds reduce high inflation. \u00a0Monetary and fiscal indicators continued to tighten significantly in the second quarter, pointing towards a slowdown in the U.S. economy. Negative money growth, increasing fiscal deficit, rising real interest rates, and central banking guidance of higher short-term interest rates are creating a classic \u2018credit crunch.\u2019 This credit crunch comes as the economy progresses further down the current financial cycle, slowing growth and limiting upward pressures on inflation.<\/p>\n\n\n\n
While money supply and real interest rates reflect a traditional tightening financial cycle, as is the case now, a contraction in real bank credit is not usual when GDP is rising. Usually, money supply leads bank credit but the latest 12-, 24- and 36-month rates of change in real bank credit are all negative instead of the historical average of 3.4%\/yr.<\/p>\n\n\n\n
As the second quarter ended, the contraction in bank credit showed the potential for a credit crunch if not enough cash is available. During this time those holding sufficient cash for their needs will not be impacted if the bank credit crunch is widespread.<\/p>\n\n\n\n
Edi Alvarez, CFP\u00ae
BS, BEd, MS<\/p>\n\n\n\n
www.aikapa.com<\/a><\/p>\n","protected":false},"excerpt":{"rendered":" Shrinking the money supply has helped the Feds reduce high inflation. \u00a0Monetary and fiscal indicators continued to tighten significantly in the second quarter, pointing towards a slowdown in the U.S. economy. Negative money growth, increasing fiscal deficit, rising real interest … Continue reading