Money and Credit Growth Both Slow After Spurt; And Now It Is the Virus that Is Spurting

The surge in EMU money and credit growth is passing. Gobs of monetary stimulus and fiscal actions are past their peak at least for now and probably for good. Central banks and fiscal policy cannot keep dipping so deeply in the same well time and again without consequences.

In Europe, the virus spreads but fear of it does not
Yet, the virus is circulating again in Europe and there is more resistance to government edicts meant to slow the spread. In the Netherlands, social media influencers are saying "I'm out" and abandoning effort to control Covid-19 (source here). In the United Kingdom, a study finds that nearly 80% of the people in Britain are not adhering to self-isolation guidelines when they have covid-19 symptoms or have contact with someone that had the disease. In England, cases jumped by 73% in the week of September 19. In the French city of Marseilles, residents are rebelling against new tough measures to control the surge in the virus there. Switzerland has imposed new guidelines for new arrivals.

Europe is not only seeing the virus spread, but this new rash of resistance and noncompliance is going to make it harder to control the spread. The impact on the economy at this point is hard to pin down. But monetary and fiscal actions have largely been spent and can't be repeated. There is still more stimulus from the various fiscal packages already approved to play out. But monetary policy is unlikely to have a substantial subsequent round.

Stimulative monetary and credit trends
Globally money growth has accelerated and now appears to be coming off the boil everywhere though there is still enough being emitted to continue to assist growth for some time. Year-on-year money growth is strongest in the U.S. (23%), next strongest in the U.K. (14%), and nearly tied in Japan (8.6%) and the EMU (8.9%). In all cases, money growth has accelerated in each of the last two years. So there is still monetary stimulus in the pipeline even if it were stop or freeze here. EMU credit growth also has accelerated in each of the last two years, but it is only up to a 4% pace over 12 months; it peaks at a 5.5% pace over six months and has faded to 1.4% pace over three months.

The chart documents a steady increase in the growth rate of credit to the private sector in the EMU tracing back to late-2013. Money growth has been less consistent.

Europeans prevaricate on the risk?
There has not been a decision across Europe to seek herd immunity; only Sweden seems to be on that path. The reluctance of the various people of Europe to follow guidelines as directed represents something else; and it threatens the ability to contain infections. It is an interesting and curious phenomenon. Does it reflect less fear on the part of the public?

In the U.S., the economist Austin Goolsby co-authored a study (here) at the border of the Illinois and Iowa to document actual behavior. He chose that intersection because the state lines share some metropolitan areas and because Illinois had some strict lockdown and distancing rules in effect while Iowa did not. What he discovered from granular data was that when the government ordered more containment in Illinois, there also was more containment behavior in Iowa where no such strictures were officially in place. He concluded that people do what they think they need to do and maybe the government orders are not so instrumental.

The implication for Europe is that people apparently do not share the fear that the governments have of the virus. The virus kills the old who are weak and people with compromised immune systems. The virus rarely kills a healthy person. There may be other ramifications of being infected, but that is true of getting the flu and other diseases as well. People also die in traffic accidents – yet, others continue to drive their cars or scooters. In NYC, more people would have died from traffic accidents over the last six months than healthy people died from the coronavirus. In Europe, maybe people are losing their fear of the virus. After all we are bludgeoned with statistics on infections, but infection is not death. And in the U.S., the new ‘milestone' death total of 200,000 is touted as shocking even though it is only 0.06% of the population and even though about 1.6 million people in the U.S. died of disease every year even before corona came.

Going viral? Really?
Early on, the coronavirus swept through a town in Italy where 80% of the deaths inflicted were old people. In the U.S., nationwide 44% of the deaths have been in nursing homes…what kind of pandemic is this? Will history call this the nursing home pandemic? Are people right to buck their governments' efforts to crack down on freedoms to keep a virus like this from spreading? Is this ‘regulatory excess' in the name of a public heath situation and does it represent a misreading of the danger of the virus to the general population by epidemiologists who became overly stimulated by a chance to apply their craft in real life?

Dr. Michael Levitt, a Nobel Laureate in biology noted that he had followed calculations on the virus spreading and never understood them because the virus never spread in real life the way the projections said it would/could. He wondered what it was about epidemiologists that causes them always to overestimate the impact of the virus spreading. One answer is that fear is a great motivator if you want people to do your bidding. Maybe in Europe people feel that the anti-virus measures have been excessive relative to the risks and they no longer find the government's orders to restrict their freedom as necessary and instead find them intrusive. Maybe their fear has eroded…maybe they no longer believe the doomsday scenarios. This could be a turning point for the way the virus affects Europe and how it is dealt with. Time will tell.

Commentaries are the opinions of the author and do not reflect the views of Haver Analytics.