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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory -- Ignore unavailable to you. Want to Upgrade?

To: NOW who wrote (1959)	11/7/2003 8:05:12 PM
From: ild	Read Replies (1) \| Respond to of 110194

Rather, we believe that the collapse in M2 is related to the sharp slowdown in mortgagecredit growth. The bulk of M2 represents liabilities of the banking system. Accounting 101 tells us that liabilities plus net worth equal assets. Assuming that the net worth of the banking system has not changed that much in the past few months, the fall the banking system’s liabilities (i.e., M2) must be related to a fall in the banking system’s assets. And this is exactly what is shown in Chart 5. Bank credit – loans and securities on the balance sheets of banks – has collapsed in recent weeks as real estate loan growth has slowed sharply. If money supply growth does not rebound soon, then our forecast of 3-3/4% annualized economic growth for the first half of 2004 may have to be revised down. We do, however, expect a rebound in money supply growth as banks accommodate the federal government’s growing demand for credit and as businesses start to tap banks for inventories financing. northerntrust.com