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…
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.
Household debt is now 131pc of disposable income, compared with 93pc at the top the dotcom bubble, 79pc in the property boom of the late-1980s, and 62pc at the end of the 1970s…
Monetarists insist that shifts in M3 are a lead indicator of asset prices moves, typically six months or so ahead. If so, the latest collapse points to a grim autumn for Wall Street and for the American property market. As a rule of thumb, the data gives a one-year advance signal on economic growth, and a two-year signal on future inflation.
“There are always short-term blips but over the long run M3 has repeatedly shown itself good leading indicator,” said Mr Stein. He cautioned that the three-month shifts in M3 can be highly volatile.
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