Tuesday, 30 September 2014

Money Supply Growth for Norway Drops in August

The year on year growth rate in the Norwegian money supply, measured as M2 excluding Money Market Fund Shares (MMF), dropped to 5.8% in August according the data released this morning by Statistics Norway. 

The growth rate was the lowest reported for nine months and was 1.3 percentage point lower than the long term average of 7.1% since 1995.

Monday, 29 September 2014

The Combined Money Supply Growth Rate for the U.S., Euro Area and the UK Falls to 16 Month Low

The year on year growth rate for the combined money supply of the U.S., Euro Area and the UK fell to 4.87% in August, the lowest since April 2013. The aggregate money supply is measured in US$.

The drop in the growth rate was primarily driven by a drop in the growth rates of the Euro Area and the UK money supply in US dollar terms.

As of August, the U.S. money supply made up 41.4% of the combined total, the Euro Area money supply made up 45.7% while the share of the UK money supply was 12.9% of the total.

Money Supply Growth in the Euro Area Picks Up

The monetary aggregates for the Euro Area picked up again in August following the increases in July according to recent figures published by the ECB. 

The monetary base continued to decline compared to the same month last year however and is currently 32%, or about €567.4 billion, lower than the all-time high from June 2012.

Charts: UK Monetary Base and Money Supply (as of August 2014)

Friday, 26 September 2014

The Reserve Ratio for U.S. Banks (as of 26 Sep 2014)

I recently published an article titled U.S. Banks Are Now Operating With 100% Reserves - Is Full-Reserve Banking The Next Step? which pointed out that U.S. banks (i.e. depository institutions) are now effectively operating with 100% reserves. In the article, the reserve ratio was calculated as bank reserves in percent of the M1 money supply. 

Going forward, I'll publish the latest ratio from time to time to see how it is progressing. Here's the first update based on data published today by the Fed for the weekly period ending Wednesday 24 September. The current reading is 99.0%, with the reserve ratio averaging 98.6% during the last four weeks.

The small chart inserted shows the ratio for the period 1 January 1984 to 10 September 2008. As this chart in the chart demonstrates, the reserve ratio averaged less than 1% (yes, 1%) for most of the decade preceding the banking crisis culminating with the spectacular bust in September 2008. In fact, for the period 16 September 1998 to 10 September 2008, the reserve ratio averaged a razor thin 0.76%. Starting mid September 2008 (the week Lehman went belly-up), the ratio started its surge towards 100% as the Fed granted "emergency" credit to the banks (see chart here) followed by the implementations of QE1, QE2 and QE3. In addition, the Fed started paying banks interest on reserves (0.25% p.a.) giving banks another incentive to build up their reserves.