For global manufacturers, supply chain allocated budgets are losing purchasing power at a rate equal to monetary expansion. Below, why monetary inflation (and asset inflation) is forcing electronics manufacturers to face higher cost of capital – now approximately 24% the last 12 months as of March 2021.
This debasement and quantitative easing will continue, roughly, to the same degree, each year for the next few years given Federal Reserve policy statements. And unless your budgeted funds return rate is more than the rate of monetary expansion, after you deduct administrative fees the value of your supply chain budget will have dynamics equivalent to a melting ice cube.
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Manufacturer corporate treasury purchasing power is becoming increasingly weakened in US dollars terms while fiat currencies elsewhere are being debased at an even faster rate.
US M2 and M1
Enlarge graphic above, click here
The links below include information quantifying how, moving forward, the Fed is adding liquid deposits and money market deposit accounts to the old way of previously measuring M1. Readers visiting the links will also see changes spelling out how the Fed is implementing the way is measures M2, moving forward, as well.
View interactive M2 chart at https://fred.stlouisfed.org/series/M2
View interactive M1 chart at https://fred.stlouisfed.org/series/M1
What about M3?
Per investopedia.com: M3 is a measure of the money supply that includes M2 as well as large time deposits, institutional money market funds, short-term repurchase agreements (repo), and larger liquid assets.
The M3 measurement includes assets that are less liquid than other components of the money supply and are referred to as “near money,” which are more closely related to the finances of larger financial institutions and corporations than to those of small businesses and individuals. View interactive M3 chart at here.
As inflation takes hold, its the debtors who tend to favor inflation, whereas manufacturers, with their easy access to credit – and relaxing credit lines – are more likely to be burdened by debt and this debt is growing since they have higher credit ratings and can borrow more.
Extended outsource contract manufacturing supply chains have many moving parts. Costly manufacturing supply chain projects like SAP and QAD can take 24 to 36+ months for deployment and are now being heavily reconsidered as manufacturers reassess their needs, asking themselves; how do we extract value today, knowing our budgeted purchasing power will be less one year from now? Which projects do we shutter or pause? How will my project investment solve our current business challenges and what is the timeframe for ROI?
Manufacturing project rate of return
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