Sunday, 16 March 2014

U.S. Money, Credit & Treasuries Review (as of 5 March 2014)

The U.S. monetary base hit a new record high for the bi-weekly period ending 5 March according to figures released by the Federal Reserve on Friday. At US$ 3.8859 trillion, the base expanded 33.66% on the same period last year. Though a significant increase, it was the lowest year on year (YoY) growth rate since the bi-weekly period ending 18 September last year. As the Fed so far this year has reduced its asset purchases to US$ 65 billion a month (from US$85 billion a month in 2013), the year on year growth rate will continue to drop unless the Fed reverses its stated policy of tapering this year.

After hitting 5.50% on 22 January this year, the M2 money supply YoY growth rate has since picked up pace somewhat hitting 6.1% on 5 March. This is however lower than the 6.80% average growth rate last year and substantially lower than the 8.56% average in 2012. Bank Credit growth has also moved up in recent weeks.

It appears the recent increase in the M2 growth rate has been spurred by increases in Loans & Leases for the commercial banks (part of Bank Credit). Having bottomed at 1.7% in early January, the YoY growth rate has since increased to 2.82%, the highest recorded since mid October last year. It's of course to early to tell if banks have committed to expand lending. What we do know however is that in order to avoid a significant reduction in the money supply growth rate, banks this year will have to increase lending substantially especially if the Fed commits to further tapering. It will certainly not be excess reserves that hold back bank lending growth as it currently amount to more than US$ 2.5 trillion.

Taking a look at treasury yields, the 1-year yield was largely unchanged on two weeks ago while the 10-year yield increased five basis points. Compared to a year ago, the 1-year yield is down by three basis points while the 10-year yield is up 70 basis points.

The tables below summarise some key developments in money, credit and treasury yields for the U.S. economy as of the bi-weekly period ending 5 March (as of 14 March for treasury yields).

Also check out developments in the Austrian True Money Supply (short version).