"The increase in money supply is the real factor that creates an artificial economic boom. It is likely that people such as Jerome Powell know this, but they are unable to admit it because it would cause havoc in the economy."-Alasdair Macleod
WHAT DOES MACLEOD MEAN?
In Alasdair Macleods opinion, the high inflation we are currently experiencing was not just caused by the Ukraine war, but also by the incredible increase of money supply that happened through central bank policy. This has in Macleods opinion to the latest boom in stocks, we have experienced since the corona pandemie until last year.
While many would suggest that this is not the case, there are a lot of charts backing his thesis. For once, there is the strong correlation between the S&P500 and the amount of money (M2) which both have developed close to similar during the last year. This however suggests that the stock market falls when the amount of money falls, which is what currently happens, since the central banks are taking money out of the system by raising interest rates.
Seeing that, one assumption we can take out of the thesis is that the markets will probably have found a bottom once the trend of less money in the system will be reversed. This would, in this case mean that the market will not see new all time highest until central banks will lower their interest rates. This thesis is also underlined by another fact, which is that in most cases markets found a bottom shortly after interest rates were lowered. This however raises the question on how to invest in the current times.
Trade safely.
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