@money supply -- trotsky, 12:19:03 09/11/06 Mon
the narrow money supply measure M1 has begun to contract year-on-year. so far, the contraction in this measure in 2006 looks very similar to the contraction in late 2000/early 2001.
base money has so far gone sideways with a slight upward drift in 2006 safe for a big upward spike in January.
commercial loan growth has been very vigorous since the '03 low (total business loans outstanding only bottomed in late '03), but the rate of change in its annual growth rate is beginning to flatten now (it's still in double digits of late though).
meanwhile, consumer credit is a very volatile data set, but its rate of change has actually been in a gently sloping DOWNWARD channel (inside the channel, volatility is high) since 2000 (making lower lows and lower highs year after year).
it seems likely that loan growth in all categories is close to reversing imo, as narrow money supply growth is going negative while broad money supply growth is at best sluggish (the rate-of-change charts of broader money measures are also in a downward sloping channel) right now. also, free bank reserves growth has gone negative, and excess reserves at depository institutions are in negative territory at the moment.
loan loss reserves at banks and mortgage lenders are at a record low, the yield curve has just reversed from inversion to steepening, and the lag effect of past rate hikes still has about 6-9 months to come fully through. this doesn't bode well for liquidity in the next several months. also, banks have reportedly begun to somewhat tighten credit standards of late - in part due to regulators requesting more circumspection in aggressive mortgage lending products such as option ARMs, and probably also because the faltering housing boom is beginning to worry them (the foreclosures are beginning to pile up, not surprisingly).
all of this adds up to what is commonly seen close to the beginning of economic recessions.
for gold this is a near term negative (as it is dragged down by falling industrial commodities prices), but a long term positive (as gold is an asset class that normally does best when liquidity is in decline mode and the CB starts to pump as a countermeasure). |
