Published on Jul 3, 2026
This article was written by Adem Tumerkan
Content Editor, Dunham | 2025 ThinkAdvisor Luminary Award Winner | 2026 Wealthies Finalist — Thought Leader of the Year | Macroeconomics, markets, geopolitics & global trends
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Bank lending, not the Fed, pushed M2 to a record $23.1 trillion in May 2026 — the fastest money-supply growth since 2021. At the same time, car buyers are stretching loans past seven years to afford record payments, and global supply chains are under their worst strain since the pandemic after the U.S.-Iran war disrupted shipping through the Strait of Hormuz.
M2 (liquid money supply) surged $247.8 billion in May 2026 to a record $23.1 trillion - the biggest monthly increase since May 2021 - pushing the year-to-date gain to $698.6 billion, the fastest January-to-May pace in five years.
More dollars chasing the same pool of goods, homes, and financial assets is the textbook setup for inflation, and it doesn't hit everyone the same way. New money created through bank lending tends to reach asset owners first - people buying homes, stocks, and businesses - long before it reaches a paycheck. When the money supply grows faster than wages, the gap between people who own assets and people who work for a living widens, and inflation becomes a big problem.
Who actually prints the money in this country? Most people would say the Fed. But they would technically be wrong.
Let’s call it The Second Printer - the idea that the real money-creation machine in the U.S. economy isn't the central bank at all. It's the commercial banking system.
I’ve written about this dynamic before1, but here’s the gist. Every time a bank issues a mortgage, a car loan, a line of credit, etc., the bank is just creating brand new money out of nothing.
For example, Maria walks into her local bank and takes out a $30,000 loan to buy a car. The bank doesn't dig $30,000 out of a vault or pull it from someone else's savings. It just types a number into Maria's account. Thirty thousand dollars now exist that didn't exist five minutes ago. The loan is a on the bank's books, the deposit is an - and both show up . Maria goes and buys that new car. And the dealership deposits the check. Thus, $30,000 in brand-new money is now circulating through the economy.
Now, multiply that by millions of mortgages, auto loans, and credit lines every month, and you get the real driver of the money supply (M2).
Sure, the Fed can nudge that lending via raising or cutting rates. But nudging isn't creating. Loans create deposits2, not the other way around. The real money supply is set by commercial banks and the Treasury (via deficit spendng) - the Fed only influences it.
And right now, the numbers show that money creation is running hot.
Since January 2020, M2 has grown a staggering 49.4% - a 6.55% compound annual growth rate, more than a full point above the roughly 6.3% average pace money supply has run at since 2000.
Meanwhile, so far in 2026, M2 has soared ~700 billion, the largest January to May increase in five years.
So, what's actually behind this specific surge?
Keep in mind that new money shows up in home prices, portfolios, and inflation data long before it shows up in wage growth (ask anyone who bought stocks or a house in 2019 versus 2024 how that worked out).
The point is - the Fed doesn't run the printing press. The banking system does.
And it’s running harder than it has in five years.
Average new-car payments hit a record $777 in Q2 20264, amounts financed hit a record $44,156, down payments fell 10% year-over-year to $5,815, and nearly a quarter of buyers now sign loans of seven years or longer.
A car payment isn't optional the way a lot of other bills are - people need a working vehicle to get to a job, and lenders know it. That gives this market real predictive power - when car payments start breaking down across the credit spectrum, it's usually one of the first signs that household budgets are breaking under the weight of everything else. The way this auto market is going is a sign of a system buying time rather than solving the problem.
Car dealers keep finding clever ways to sell people a $50,000 car without ever lowering the price or letting anyone feel like they overpaid - they just stopped talking about the price and started talking about the payment.
This is a form of “extend and pretend” - an industry-wide habit of stretching a loan's length instead of shrinking its cost, so the payment looks manageable even when the debt underneath it is worrying.
Buyers will fall into this because of a bias called payment myopia5 - aka evaluating a loan by whether the monthly payment fits the budget and ignoring the total cost.
For example, a $777 average payment may feel manageable – but it’s eating into disposable income for years through interest costs (plus the car depreciating faster than the loan balance shrinks).
That's why dealers stopped selling the price and started selling the payment plan.
Why? Because the other option would be to just cut prices and let buyers catch up. But dealers won't do that until they're forced to.
Take a look at some of the recent data showing this ugly trend:
The point is - stretching the loan doesn't fix the car market's affordability problem. It just kicks the can down a longer and longer road.
But eventually, the can runs out of road.
Credit tightens, households max out, and someone has to eat the difference.
When that happens, car makers will be the ones forced to slash prices to move inventory out the door - and their margins will be the ones left treading water.
The New York Fed's Global Supply Chain Pressure Index8 climbed to 1.8 in April 2026, its highest reading since mid-2022, after jumping 1.1 points in a single month - the sharpest monthly increase since March 2020 - driven by the U.S.-Iran war.
Every time this index has spiked this hard, inflation followed close behind. Supply chain pressure is a leading indicator - meaning it shows up in shipping costs and delivery times months before it shows up in a CPI report. A war that shuts down a critical waterway carrying roughly ~25% of the world's seaborne oil poses real supply chain risks.
Global trade just relearned a lesson it hoped it would never have to deal with again.
When a handful of narrow waterways carry a huge share of the world's goods, closing even one of them can stress supply chains.
Think of it like a supply tax - a hidden cost that gets added to global goods the moment a critical trade route becomes unreliable (whether or not the goods themselves ever get more expensive to produce).
It doesn't matter that a factory in Vietnam or a refinery in Saudi Arabia is running exactly as efficiently as it was last year. If the ship carrying that output can't get through the Strait of Hormuz (in this case), or has to reroute around the Cape of Good Hope instead - the cost of getting the product to market just went up, and so did the time it takes to get there.
This is the second time in six years the world has been here.
In 2020-22, it was the COVID pandemic seizing up factories and ports all at once.
In 2026, it's a war closing a chokepoint that most of the global energy trade simply can't route around fast enough.
But there's a reason for relief here.
The U.S. and Iran have stepped back from the brink for now, with a ceasefire holding and diplomatic efforts continuing rather than collapsing. That should - in theory - start easing the pressure showing up in this index as shipping traffic through the strait somewhat normalizes.
But "de-escalating" and "resolved" are two very different words.
Ship transits through Hormuz remain far below pre-war levels even with the truce in place, and the region has already shown how fast things can flip - a ceasefire declared, then a strait declared open, then shut again.
It doesn't take a second war to reignite this – just a drone or a ship seizure.
Either way - supply chains don't need to be broken everywhere to cause a global inflation scare.
They just need to be broken in the one place everyone depends on.
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