the economy. However, as the pandemic continues to linger, central banks are now tightening their monetary policies, which could have a significant impact on the economy.
The contraction of the money supply is a result of the Federal Reserve’s decision to reduce its balance sheet by selling off assets it acquired during the pandemic. This move is known as quantitative tightening, and it is a reversal of the quantitative easing policies that were implemented during the pandemic.
According to Gerli, the contraction of the money supply could lead to a depression with double-digit unemployment rates. This is because a reduction in the money supply leads to a decrease in spending, which in turn leads to a decrease in economic activity. This could result in businesses closing down, job losses, and a decrease in consumer confidence.
The impact of the contraction of the money supply is already being felt in the stock market, with many investors becoming increasingly cautious. The S&P 500 has fallen by 5% since the beginning of September, and many analysts believe that this is just the beginning.
The Federal Reserve has stated that it will continue to monitor the situation and adjust its policies accordingly. However, many economists believe that the damage has already been done, and that the economy is headed for a rough patch.
In conclusion, the contraction of the money supply is a cause for concern for many economists and market analysts. While the Federal Reserve has stated that it will continue to monitor the situation, the impact of this policy shift could be significant. It remains to be seen how the economy will fare in the coming months, but one thing is certain – the road ahead is likely to be bumpy.
