RE:RE:RE:RE:RE:RE:RE:RE:Us crash imminent The $900 billion above trend is referring to M2 money supply not the assets on the Feds balance sheet. Money has been consistently growing at about 6% per year. Nominal gdp has been consistently growing at about 4% and the difference can be explained by the velocity of money shrinking by 2% per year. This is the path we need to get back on to return to trend. If M2 were to grow by 7% instead of 6%, then inflation will increase by 1% ceteris paribus. Nominal gdp will increase by 1% (rhs of equation)
Using the quantity theory of money,
ΔM + ΔV = nominal gdp
6% + (-2%) = 4%
At the end of 2019, M2 was =~ $15473.1 B
If the covid pandemic not occurred there should have been approximately $15473.1B *1.06 ^ 5 = $20,706.498B in M2 supply by the start of 2025. Today we have $21 538.1 B of M2 in circulation which is above trend by $831.6 B (less than $900B I referenced) In other words, the Fed will have to continue shrinking the balance sheet so that M2 growth can get back to trend. If they stop QT now, there is a risk although not certain, that inflation may reignite because of the excess bank reserves in the system.
I think Trump is being a bully and just using negotiating tactics for a better deal. I'm not convinced that we will see 25% tariffs here in Canada. This will not be a good outcome for North America. Who is going to absorb these tariffs? The billionaires?
I've been focusing a lot on the government deficit which is a real issue here. If they cut taxes to pay for these tariffs then you're still back to square one. To shrink the deficit means that Americans have to feel the pinch through higher prices which will lead to less purchasing power, more layoffs and a likely recession.