I was wondering about how reliable M2 money supply has been as an indicator. When I look at historical data it seems like it is mostly useless in predicting an economic downturn. Are you seeing something that I am not seeing? Are there any alternative indicators to this?
Great question. I have done a lousy job of talking about the M2 growth rate as an indicator since I started the website and have glossed over it in the updates. M2 will always expand, the key is the rate at which it is growing. That growth rate is what corresponds so well historically to GDP growth rates, which is one of the things I try to look at.
I will try to expand on it a bit in the updates in the future.