Albert Edwards of Societe General with a terrific note.
When I started work in financial markets in 1982, monetarists were considered to have won the economics argument. Yet for the last few decades they have been pushed to the edge of the economics world, excluded and often ridiculed by the mainstream. Central bankers, including Fed Governor Jay Powell have explicitly stated that they no longer look at money supply. So, it is no surprise that just as the monetarists who accurately called the current inflation take-off were ignored, the current shocking decline in the money supply is also being ignored. This could prove to be a mistake of the highest order as ‘higher for longer’ may yet cause a surprise economic and financial collapse.
As a demonstration of how monetarism gripped the economics world in the late 1970s, I remember as a high school student around 1977, happily sitting in The Plough pub near my home in Kew Gardens, London reading Milton Friedman’s pamphlet on the expectations augmented Phillips Curve. This showed there was no trade-off between unemployment and inflation because the long-run Phillips curve was vertical. By the time I started working in finance a few years later, the weekly US money supply data had become the most important data point on an economist’s schedule. My how times have changed.
