World Money Supplies: Vastly Different Trends

Money supply in EMU is just moving sideways. The Yr/Yr rates of growth are fairly steady but the shorter-term sequential rates show a clear slowdown. Expressed in real terms, that is deflated by consumer prices, the money growth trend in EMU looks far worse. The ECB’s plans to inject funds into banks using multiyear loans has had many side effects, we have yet to see if it can arrest the decline in the stock of money and if it can boost real balances.

Loan growth in EMU is also looking very bad. It is slowing and is much weaker in inflation-adjusted terms. The contraction in real credit balances has been going on for three years.

Money growth generally is moving sideways or contracting sharply, except in the US, where repeated efforts to battle deflation seem to be also invigorating money supply growth (M2). The US is the only country/region in this mix in which money growth has accelerated in each of the last two years and whose acceleration is notable. The growth in real balances has accelerated too during this period.

Among the large independent monetary centers, the UK displays the most frightening configuration. The UK money stock is falling by 1.8% Yr/Yr and real balances are dropping at a 5.5% pace.

The UK is very much at the risk of recession. Its data have blown warm and cold and its recent Q4 GDP metric posted a slight decline. There are companion worries about Europe where the member nations in EMU have having a roller coaster ride of experiences. Some economies are very weak, Spain’s unemployment rate just moved up over 22% with over 5-million unemployed (that would nearly half of Greece’s population), while others are marginal. Germany’s growth is uneven but many of its business indicators are still relatively firm and its exports have yet to be much-affected. All of Europe is worried about the ongoing Greek debt negotiations and what may follow those.

The Federal Reserve’s plan to abort deflation seems to be bearing fruit if the behavior of money supply says anything about it. Meanwhile EMU and Japan have policies that have not been able to have much impact on nominal money growth. The EMU looks to be losing that battle over the most recent time periods and has been losing that battle to maintain real balances for a while longer. Japan, still fighting off deflation, has its real balances with nearly the same growth as its nominal balances.

The money supply figures by themselves show how very different are the economic and financial circumstances across the main monetary centers for international finance. Concerns about UK growth are well-placed. EMU is also threatened. Japan seems stuck as it has been for some time. Only the US seems to have been able to boost its monetary aggregates. Now the argument in the US is over how long such special policies will be needed. Cleary the rate of money growth in the US is once again substantial. Just as clearly the global growth environment is still poor. While US consumers are feeling better and job growth has improved many key US growth metrics, including the new report on GDP, continue to lack dynamism and the sort of balance and solid foundation that growth will need to build upon. In short, central bankers everywhere are still struggling and some are struggling more than others. And we have only looked at a very short list of countries/regions. The struggle is far broader than this.