Tech's Role In M2 Contraction

Todd Moses
April 09, 2024

M2 is the U.S. Federal Reserve's estimate of the total money supply based on short-term savings, checking, and cash.

Inputs that matter: The Motley Fool warns that we are facing the most significant drop in M2 since the Great Depression.

  • M2 is a critical factor in forecasting inflation.
  • This week's employment numbers coincide with M2 depletion as full-time work fell by 6,000 in the U.S., while part-time work increased by 691,000 with a 5.2% increase in multiple job holders.
  • The U.S. economy is shrinking as people have less money to spend.

The opportunity: "We do not expect that it will be appropriate to lower our policy rate until we have greater confidence that inflation is moving sustainably down toward 2 percent," explains Federal Reserve Bank Chair Jerome Powell.

  • Tech layoffs conducted in 2023 were 59% higher than in 2022.
  • TechCrunch reports that in 2024, Apple, Dell, IBM, EA, Sony, Rivian, Cisco, Toast, Grammarly, iRobot, Microsoft, and many others have made cuts or planned staff reductions.
  • IBM announced a strategy to replace upwards of 8,000 jobs with A.I.

Zoom in: CNBC reports, "In October last year, the U.S. tightened restrictions to prevent the sale of artificial intelligence chips and semiconductor tools to China."

  • Intel recently announced an $8.5 billion grant from the U.S. government to build chip manufacturing facilities inside the country.
  • Nvidia currently manufactures its chips in Taiwan, with reports of moving production to Vietnam, where Intel has a facility.

Between the lines: The $280 billion CHIPS Act, signed into U.S. law in 2022, aims to catalyze domestic semiconductor manufacturing capacity investments.

  • As A.I. becomes more of a concern for national security, countries are locked in an arms race to control the most advanced technology.
  • The most significant risk is for a competing country to control the manufacturing of critical semiconductors used in most products.

Follow the money: Newsweek reported in December, "A Congressional Budget Office (CBO) report on Friday forecasts a rise in U.S. unemployment from the current 3.9 percent to 4.4 percent by the end of 2024, signaling potential job losses for millions amidst a contracting gross domestic product (GDP)."

  • The first driver for M2 is income followed by inflation.

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Read More

  1. https://fred.stlouisfed.org/series/M2V
  2. https://www.fool.com/investing/2024/04/07/us-money-supply-great-depression-big-move-stocks/
  3. https://banananomics.co/current_macroeconomic_trends
  4. https://www.liberationnews.org/u-s-workers-forced-to-bail-out-intel-a-top-100-company/
  5. https://www.tomshardware.com/tech-industry/nvidia-reportedly-eyeing-vietnam-for-future-chip-production
  6. https://www.mckinsey.com/industries/public-sector/our-insights/the-chips-and-science-act-heres-whats-in-it
  7. https://cnbc.com/2024/02/12/china-making-more-advanced-chips-but-beijing-still-faces-challenges.html
  8. https://techcrunch.com/2024/04/05/tech-layoffs-2023-list/
  9. https://www.newsweek.com/us-unemployment-2024-predictions-congressional-budget-office-1853010