Summary: Tepid US broad money growth still dependent on QE
What the chart shows: The chart shows the annual percentage change in US broad money and in credit to the non-bank private sector. Broad money is the recreation by Stein Brothers of the M3 measure discontinued by the Federal Reserve in March 2006.
Why the chart is important: US broad money growth continues to oscillate around 5%. This is better than the 4% M4 growth seen in the UK and considerably better than the 1.4% recently registered for October in the euro area. Nevertheless, US bank balance sheets – and hence broad money growth – still seem dependent on continued quantitative easing. Since the Fed’s ‘taper terror’ subsided in September, broad money has grown by $135bn, compared with the $160bn the fed has spent on buying assets from the banking system over the same period. Total bank credit has grown by $36bn and loans and leases by $19bn (the difference between total bank credit and loans and leases in bank credit is lending to the public sector). By contrast, cash assets have grown by $191bn. What this all means is that US banks are still stocking up on cash and that credit growth remains weak. The economy seems strong enough to support the beginning of a QE taper; but the development of bank balance sheets over the first two or three months after a taper begins, will be a key pointer as to when it will actually end.