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Is the United States facing a deflationary doom loop?


In finance, discussions around inflation and hyperinflation often dominate the narrative.

However, it's crucial to step back and reevaluate our understanding of the overall framework.

Recent trends in the United States indicate a significant decrease in the money supply, raising questions about the possibility of a deflationary doom loop.

In this article, we will explore the charts and delve into the intricacies of this topic to gain a deeper understanding of the current landscape.

Join me as we analyze the nuances and implications of the decreasing money supply while challenging conventional wisdom and uncovering potential outcomes.

Analyzing the Money Supply

Let's start by examining the data. Over the past year, deposits have experienced a substantial decline.

March seems to be a significant turning point, prompting us to ponder the events that unfolded during that time.

It's worth noting that while inflation enthusiasts are quick to emphasize the expansion of the money supply, they tend to remain silent when faced with a decrease.

This inconsistency raises intriguing questions about the definition and dynamics of inflation and deflation.

Deflation and Consumer Prices

One common misconception is the belief that deflation is solely linked to a decrease in consumer prices.

However, it's essential to recognize that deflation is, by definition, a contraction in the money supply, irrespective of its impact on consumer prices.

In the case of the United States, we've witnessed a notable decrease in the money supply over the past year, yet consumer prices have continued to rise.

This apparent contradiction challenges our traditional understanding and calls for a nuanced perspective.

Examining Historical Context

To further deepen our understanding, let's examine historical evidence. Looking back to the late 1800s, we observe a 400% increase in the money supply and a 50% decrease in prices.

This historical anomaly highlights the complexities involved and emphasizes the importance of considering multiple factors when analyzing the relationship between money supply and price levels.

The Deflationary Doom Loop

To determine whether we are heading into a deflationary doom loop, we must assess the interplay between bank lending, money supply, unemployment rates, and economic conditions.

If bank lending plummets, leading to a decrease in the money supply, it would likely result in higher unemployment rates and a potential recession or economic depression.

While downward pressure on consumer prices may occur, the duration and magnitude of such a downturn remain uncertain.

However, it is crucial to understand that this outcome hinges on various factors and does not automatically indicate a deflationary doom loop.

Unpacking the Nuances

To fully grasp the intricacies of the situation, we must explore the relationship between deposits, loans, and purchases. Paying off loans to banks decreases deposits while paying non-bank entities does not impact deposits significantly.

Similarly, when banks purchase treasuries or other assets from non-bank entities, it increases deposits.

Understanding these dynamics helps us recognize that decreased deposits resulting from interbank transactions do not necessarily translate to diminished purchasing power.

Observing the Yield Curve and Central Planners

As we analyze the yield curve and central planners' response to a potential deflationary doom loop, we must consider the Federal Reserve's balance sheet.

Both indicators have exhibited a downward trend despite fluctuations in base money and broad money. This nuance challenges the notion that expanding base money alone guarantees inflation.

When determining the likelihood of a deflationary doom loop, monitoring loans and leases closely is crucial, as they decrease, and diminishing deposits would significantly impact purchasing power.


In conclusion, the current trajectory of the money supply raises thought-provoking questions about the possibility of a deflationary doom loop.

While the concept of deflationary doom may seem alarming, it's crucial to approach the topic with a nuanced perspective.

The interplay between various factors, including bank lending, money supply, and purchasing power, contributes to the complexity of the situation.

Determining whether we are truly headed for a deflationary doom loop requires a careful examination of loans and leases.

If these indicators decline simultaneously with deposits, it could significantly impact purchasing power.

However, it's important to acknowledge that we have not yet reached that point.

The response of central planners, particularly the Federal Reserve, becomes a critical factor in shaping future outcomes.

While low-interest rates may suggest loose monetary conditions, it's essential to differentiate between cheap money and actual ease of borrowing.

In an environment where banks become more cautious, even abundant borrowing capacity may not translate into increased lending.

The potential consequences of a deflationary doom loop include a higher likelihood of recession or economic depression, accompanied by decreasing consumer prices and declining asset prices.

However, the duration and severity of such a scenario remain uncertain, as government intervention and policy responses may influence the trajectory.

As we navigate these complex dynamics, it's essential to challenge conventional wisdom and explore alternative perspectives.

The financial landscape is multifaceted, and understanding the nuances allows for a more comprehensive analysis of macroeconomic trends and global finance.

In conclusion, the current decrease in the money supply raises questions about a potential deflationary doom loop. However, a thorough examination of loans, leases, and purchasing power is necessary to gauge the true impact.

As we continue to monitor these indicators and central planners' responses, we can better understand the path ahead.

By embracing a nuanced approach, we can navigate the complexities of the financial landscape with insight and foresight.