Smaller companies are however likely to be credit constrained by a “broken banking system”. Larger real world companies have little need to borrow from the banks given the strength in the corporate bond markets, although it must be noted that the latter is itself a derivative of the general strength in bonds that has been caused by the Fed’s QE and the Treasury’s relative lack of bond issuance this year. The reasons for the weak growth in private credit are varied. USA: Bank lending to real economy private sector Conversely, private sector bank credit growth – and bank risk asset growth in general is essentially zero at present.
its savings that are known as the “TGA”), or the commercial banks’ own forays into the Treasury bond markets.
In practice all of the monetary expansion over recent months has been due either to the Federal Reserve’s Quantitative Easing, the US Treasury’s implied monetization of the budget deficit via the drawdown in its own cash balances (Washington is at present being obliged by the Debt Ceiling rules to fund its ongoing deficits not by issuing bonds but instead by drawing on its accumulated cash reserves – i.e. USA: M2 ProxyĪside from its sheer size, one other unprecedented feature of the current boom in US monetary growth is that the money creation process has revolved entirely around the public sector. The whole process has felt quaintly nostalgic for those of us that were working in the late 1980s Money and Asset Price booms.Īdmittedly, the latest monetary boom did falter very briefly during the latter part of 2021Q1, but the data has in general been strong since then and it was particularly strong during the early part of the second quarter and again more recently Certainly, there is no shortage of liquidity within the global system at present and perhaps the biggest surprise for us at this time is that equity markets have perhaps not been stronger, and the dollar weaker, given the current monetary stimulus.Īsset prices have stumbled higher and the US underlying balance of payments does indeed seem weak (implying that the US is providing a liquidity boost to the Rest of the World), but it seems that the marginal power of liquidity may have started to wane as investors have become exhausted / fearful / concerned that we are no longer living in the real world when it comes to valuations etc.
Indeed, we have had no hesitation in referring to the last 18 months as being the first global monetary boom (as opposed to a credit boom) that we have witnessed in almost 20 years. There has been a marked inflation of money balances in the USA and of course elsewhere within the global economy over the last 18 months that has led to a generalized inflation of household balance sheets – nominal expenditure, financial asset prices, and property prices have each inflated – in many cases proportionately.
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