Allow me to explain why we have not seen a recession yet despite the collapse in base money supply. We are witnessing the stealth nationalization of the economy. What does this mean?

The entire burden of the monetary collapse and rate hikes is falling on the shoulders of families and small businesses, while large corporations and governments are virtually unaffected.

Thus, when an agent like the state, which weighs 40 to 60 percent of GDP in most economies, continues to consume wealth and spend, gross domestic product does not show a recession even though consumption and private investment in real terms is declining. Bloated government spending is disguising a private sector recession and the decline in real disposable income, real wages, and margins of SMEs (small and medium enterprises). Furthermore, the accidental and exogenous factor of widespread weaker commodities is boosting the external contribution of gross domestic product.

Investor sentiment is clearly bullish. The CNN Fear and Greed Index for June 18th, 2023, stood at 82, which signals “extreme greed”. This is a drastic optimistic move after closing at “greed” (56 over 100) a month before and “extreme fear” (17 over 100) only one year ago. However, in the same period, the Citi global economic surprise index has declined twelve points, with the euro area component collapsing 123 points. The US economic surprise index has also declined by thirteen points.

The disastrous performance of the euro area, which fell into recession in the first quarter, is also happening while this economic region enjoys significant tailwinds: Declining energy and commodity prices have supported the euro area’s GDP, boosting the external component thanks to meaningfully lower imports. Furthermore, the euro area should benefit from the expected positive impact of the massive EU Next Generation stimulus plan. None of those effects have helped, which proves yet again that massive government stimulus plans hardly boost growth and productivity and are often directed to politically favored sectors with little real impact on jobs or growth.

The S&P 500 has risen to a new high and is close to its record level. Complacency seems to be taking hold of market participants because the latest leg up has been driven entirely by multiple expansion.

According to Bloomberg, the Price to Earnings ratio of the S&P 500 has erupted back to 19.2x, almost a 10% increase in valuation with no discernible improvement in earnings or margins. The latest round of revisions shows consensus estimating a -0.28% growth in earnings for this year.

Consumer confidence is back at 2022 lows and the economic surprise index is also weakening. What are investors betting on? Good old quantitative easing to return.

Most politicians have used the “Ukraine invasion card” to justify the massive inflationary burst in 2021-2023.

It does not matter if inflation was already elevated prior to the war. Supply chain disruptions, demand recovery, wage growth… Many excuses were used to justify inflation, except the only one that can make aggregate prices rise in unison, which is the creation of more units of currency well above demand.

Inflationists will blame inflation on anything and everything except the only thing that makes all prices, which are measured in monetary units, rise at the same: Money supply growth rising faster than real economic output.