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Economy in Brief

Money Supplies Continue to Erode
by Robert Brusca October 27, 2009

Over view: Money supply growth in the key economies continues to erode on a broad front. Japan sports a contrary pattern with steadily increasing growth in money supply. The UK has been through the biggest boom/bust in money supply growth; the economy is still languishing in recession. Money growth in the US and in the e-Zone is slowing as well.

Credit growth in EMU has turned negative. Loan growth is declining even over 12-months. In real terms, credit to residents is also falling. Over three-months inflation-adjusted loan volume in the Zone is falling; over six months it’s flat.

Real money supplies are declining over six months in the US and in the UK. In EMU real money balances are growing at a low 2% pace. Japan’s inflation-adjusted money supply is accelerating or stabilizing.

While it is clear that different regions have different nominal and real money growth characteristics, only Japan is showing a steady move back to monetary stimulus. At that it still has the lowest Yr/Yr nominal money growth in the group. The UK has the biggest drop off in nominal money growth but still had the strongest Yr/Yr rate of growth. The US and EMU growth rates are closer together with EMU the peak coming earlier than in the US.

The more disturbing news is the lack of credit growth. In EMU it is contracting. Banks have been stabilized by various policy actions, but those actions did not translate directly into help for the nonbank sector as banks have been very careful with new lending. In the US the President is now trying to jawbone to stimulate small business lending. Without credit growth, money growth will not be fully activated. In the US small business is the main source of job growth which is greatly needed to produce a real recovery. In Germany Chancellor Merkel is warning of another crisis in 2011 and more unemployment. There remains a lot of work to be done to get areal recovery going.

Look at Global and Euro Liquidity Trends
Saar-all Euro Measures (E13): Money & Credit G-10 Major Markets: Money Memo
  €€-Supply M2 Credit:
Residential
Loans $US M2 ££UK M4 ¥ ¥Jpn M2+Cds OIL:WTI
3-MO 2.8% 0.3% -1.6% -1.9% 8.7% 3.2% -0.4%
6-MO 2.8% 0.8% -0.9% 0.2% 1.7% 3.3% 112.9%
12-MO 4.1% 2.1% -0.3% 6.7% 9.8% 3.0% -32.7%
2Yr 7.0% 6.3% 4.2% 6.5% 10.9% 2.6% -6.2%
3Yr 8.1% 7.9% 6.3% 6.5% 11.6% 2.3% 2.8%
Real Balances: deflated by Own CPI. Oil deflated by US CPI
3-MO 2.0% -0.4% -2.3% -4.3% 5.3% 4.0% -2.8%
6-MO 2.0% 0.0% -1.7% -2.6% -1.0% 5.2% 106.9%
12-MO 4.5% 2.5% 0.1% 8.1% 8.6% 5.2% -31.8%
2Yr 5.3% 4.6% 2.5% 4.7% 7.5% 2.6% -7.8%
3Yr 6.2% 6.0% 4.4% 4.3% 8.7% 2.4% 0.7%
Japan CPI for Aug is an estimate; it uses the July value to produce the real balance figure
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