We all have problems with predictions, specifically about where the economy is heading, not least whether a business downturn is in our midst. This does not, however, mean that we don’t know anything about macroeconomics, like business cycles. Such business cycles in the past illustrate that rising inflation always foreshadows downturns, with varying lags and (usually) acceleration in the money supply preceding inflation. In order to bring the latter down to an acceptable level, monetary deceleration is needed, which commonly occurs through an anti-cyclical central bank policy. This process is always transmitted through the financial markets to the real economy. It’s straightforward: Money supply rises, inflation rises, Fed tightens, money supply falls, unemployment rises, recession ensues and inflation falls.
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By Hubert Marleau