US money supply falling at fastest rate since 1930s: McGeever
The opinions expressed here are those of the author, a columnist for Reuters.
By Jamie McGeever
ORLANDO, Florida, March 29 (Reuters) -U.S. money supply is falling at its fastest rate since the 1930s, a red flag for the economy and financial markets.
Money supply has now been shrinking year-on-year since December, an unprecedented development in modern times that should make investors sit up and take notice - growth, asset prices and inflation could all weaken.
It is largely a consequence of the reversal of the liquidity generated by massive post-pandemic fiscal and monetary stimulus, the Federal Reserve shrinking its balance sheet via quantitative tightening, falling bank deposits, and weak demand for and provision of credit.
All else equal, it is a sign the Fed has no need to raise interest rates further. Given the lag of one to two years between money supply changes and the impact on asset prices and inflation, it may even be a sign that the U.S. central bank should be cutting rates.
Fed data on Tuesday showed that M2 money supply, a benchmark measure of how much cash and cash-like assets is circulating in the U.S. economy, fell a non-seasonally adjusted 2.2% to $21.099 trillion in February from the same period a year earlier.
In seasonally-adjusted terms, M2 money supply fell 2.4% from the same month last year to $21.063 trillion.
That was before the March failures of Silicon Valley Bank and Signature Bank - both in the top 25 banks in the country - which fanned fears of a credit crunch, stoked market volatility, and prompted temporary emergency liquidity measures and backstops from the Fed worth hundreds of billions of dollars.
Matt King at Citi in London, an expert on capital flows and liquidity, says if money supply growth can reasonably be seen to expand liquidity and fuel inflationary pressures, then the opposite should be true.
"M2 is a driver of broader asset price inflation, consumer inflation, equities, and real estate. It is sending quite a negative signal for all of those now, and will likely feed through to broader economic weakness," he said.
MONEY, THAT'S WHAT I WANT
M2 measures the nation's overall stash of cash, coins, bills, bank deposits, and money market funds, and is basically the broadest measure of cash and cash-like liquid assets.
Money growth started slowing in early 2021 as base effects from the fiscal and monetary splurge to tackle the coronavirus pandemic kicked in. The trend accelerated as the Fed's QT program picked up, and M2 contracted in December for the first time since the 1940s.
Shrinking money supply is rare but has been buried this year in the blizzard of market volatility around the Fed's aggressive interest rate hikes, and more recently, the banking shock that has rocked rates and bond markets, and the central bank's expectations.
More broadly, money supply has been out of policymaking fashion for the best part of 30 years, since central banks started using interest rates as the primary tool to achieve their consumer price inflation targets, usually around 2%.
A mix of factors in the 1980s and 1990s - including falling inflation, financial deregulation, the 'financialisation' of economies - helped loosen the link between money targeting and GDP growth. Money supply was considered a less reliable basis for policymaking.
YOU NEVER GIVE ME YOUR MONEY
The post-COVID stimulus surge and the Fed's equally dramatic push to tighten policy - mainly via super-charged rate hikes, but also QT - has had a profound effect on banks' customer deposits, reserve balances, and general liquidity in the system.
The banking sector shock intensified some of these trends. By some measures, retail deposit outflows from U.S. banks have been the biggest on record, particularly from smaller and regional banks.
Estimates vary, but hundreds of billion dollars have fled these institutions. If deposits fall, banks must reduce lending to match their assets and liabilities, so the impact on M2 money supply is less clear-cut.
In addition, much of that deposit flow has gone into money market funds, which now boast a record aggregate balance of more than $5 trillion. But money market funds form part of M2.
Further muddying the picture, money market fund flows make up a chunk of the $2 trillion-plus that institutions park daily at the Fed's overnight reverse repo facility.
There's still a lot of cash in the system, but much of it is stagnant. This fits with data showing that demand for credit was already weakening, and lending standards already tightening, even before the banking shock.
Lawrence Goodman, founder and president of the Center for Financial Stability, a think tank, says too much liquidity was allowed to slosh around the system for too long, and the effects of that unwind are now being felt. Investors should ignore money supply at their peril.
"Net-net, money is being extinguished. Money metrics send signals about what is happening in the economy. If money and inflation are falling at this pace, the Fed should be done raising rates," Goodman said.
(The opinions expressed here are those of the author, a columnist for Reuters.)
U.S. M2 money supply - y/y change (FRED)https://tmsnrt.rs/42Q1EsM
US bank deposits - record outflowhttps://tmsnrt.rs/3JNRtfA
Fed's SLO Survey - commercial & industrial loanshttps://tmsnrt.rs/3Yn2QB9
U.S. M2 money supply vs asset prices - Citihttps://tmsnrt.rs/3zcAxum
U.S. bank balance sheet changes - Citihttps://tmsnrt.rs/3G4odQz
By Jamie McGeever; Editing by Paul Simao
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Τελευταία νέα
Δήλωση αποποίησης ευθύνης: Οι οντότητες του ομίλου XM Group παρέχουν υπηρεσίες σε βάση εκτέλεσης μόνο και η πρόσβαση στην ηλεκτρονική πλατφόρμα συναλλαγών μας που επιτρέπει στον ενδιαφερόμενο να δει ή/και να χρησιμοποιήσει το περιεχόμενο που είναι διαθέσιμο στην ιστοσελίδα μας ή μέσω αυτής, δε διαφοροποιεί ούτε επεκτείνει αυτές τις υπηρεσίες πέραν αυτού ούτε προορίζεται για κάτι τέτοιο. Η εν λόγω πρόσβαση και χρήση υπόκεινται σε: (i) Όρους και προϋποθέσεις, (ii) Προειδοποιήσεις κινδύνου και (iii) Πλήρη δήλωση αποποίησης ευθύνης. Ως εκ τούτου, το περιεχόμενο αυτό παρέχεται μόνο ως γενική πληροφόρηση. Λάβετε ιδιαιτέρως υπόψη σας ότι τα περιεχόμενα της ηλεκτρονικής πλατφόρμας συναλλαγών μας δεν αποτελούν παρότρυνση, ούτε προσφορά για να προβείτε σε οποιεσδήποτε συναλλαγές στις χρηματοπιστωτικές αγορές. Η πραγματοποίηση συναλλαγών στις χρηματοπιστωτικές αγορές ενέχει σημαντικό κίνδυνο για το κεφάλαιό σας.
Όλο το υλικό που δημοσιεύεται στην ηλεκτρονική πλατφόρμα συναλλαγών μας προορίζεται για εκπαιδευτικούς/ενημερωτικούς σκοπούς μόνο και δεν περιέχει, ούτε θα πρέπει να θεωρηθεί ότι περιέχει συμβουλές και συστάσεις χρηματοοικονομικές ή σε σχέση με φόρο επενδύσεων και την πραγματοποίηση συναλλαγών, ούτε αρχείο των τιμών διαπραγμάτευσής μας ούτε και προσφορά ή παρότρυνση για συναλλαγή οποιωνδήποτε χρηματοπιστωτικών μέσων ή ανεπιθύμητες προς εσάς προωθητικές ενέργειες.
Οποιοδήποτε περιεχόμενο τρίτων, καθώς και περιεχόμενο που εκπονείται από την ΧΜ, όπως απόψεις, ειδήσεις, έρευνα, αναλύσεις, τιμές, άλλες πληροφορίες ή σύνδεσμοι προς ιστότοπους τρίτων το οποίο περιέχεται σε αυτήν την ιστοσελίδα παρέχεται «ως έχει», ως γενικός σχολιασμός της αγοράς και δεν αποτελεί επενδυτική συμβουλή. Στον βαθμό που οποιοδήποτε περιεχόμενο ερμηνεύεται ως επενδυτική έρευνα, πρέπει να λάβετε υπόψη και να αποδεχτείτε ότι το περιεχόμενο δεν προοριζόταν και δεν έχει προετοιμαστεί σύμφωνα με τις νομικές απαιτήσεις που αποσκοπούν στην προώθηση της ανεξαρτησίας της επενδυτικής έρευνας και ως εκ τούτου, θα πρέπει να θεωρηθεί ως επικοινωνία μάρκετινγκ σύμφωνα με τους σχετικούς νόμους και κανονισμούς. Παρακαλούμε εξασφαλίστε ότι έχετε διαβάσει και κατανοήσει τη Γνωστοποίησή μας περί Μη ανεξάρτητης επενδυτικής έρευνας και την Προειδοποίηση ρίσκου όσον αφορά τις παραπάνω πληροφορίες, τις οποίες μπορείτε να βρείτε εδώ.
