Monday, 28 October 2013

How About Curing this Imbalance

Back in October 1999, when Sean Corrigan correctly pointed out the US stock market bubble and other distortions in the US market, he wrote,
In the last four years, commercial paper outstanding in the U.S. has doubled while commercial bank assets as a percentage of GDP have burgeoned from roughly 55% to over 60%. 
Fourteen years on, commercial banks' total assets has expanded 151%, from USD 5.5 trillion in mid October 1999 to about USD 13.8 trillion as of week ending 16 October 2013. As GDP increased a modest 67.7% in comparison during the same period, banks' total assets to GDP today stands at a mind boggling 83.0%!

With the Fed, at least publicly, being obsessed with "curing" "imbalances", I think we all can rest assure this is one "imbalance" Bernanke and soon Yellen will not attempt to "cure". Therefore, the percentage is likely to continue to increase until fractional reserve banking in the US as we know it collapses (as there is no interest whatsoever in really fixing it in the circles of power). If you disagree, this effectively means you believe GDP growth will outpace money supply growth in the years ahead. With M2 money supply growth having outpaced GDP growth on average by 2.1 percentage point (or 52.0%!) a year during the last decade, I certainly would not put my fiat money on such a bet. Replacing Alan with Ben, I'll conclude as Corrigan concluded his paper fourteen years ago,
Ask not for whom the bell tolls, Ben. It tolls for thee.

No comments:

Post a Comment