Monday, 12 May 2014

U.S. Money, Credit & Treasuries Review (as of 30 April 2014)

The U.S. monetary base declined USD 80 billion on two weeks ago to end April on USD 3.9155 trillion. As the effects of the higher monetary base compared to last year and Fed tapering their asset purchases, the growth rate in the base is now rapidly declining: at the end of December last year, the base expanded 39.4%, at the end of April this has now fallen a full 10 percentage points to 29.4%. This trend will continue going forward as well, but at an even quicker pace as asset purchases have now been reduced from USD 85 billion a month in December last year to USD 45 billion starting this month.

Future monetary inflation is therefore increasingly becoming dependent on banks expanding their balance sheets. I have now therefore added a more detailed overview of bank assets to monitor developments going forward. These will be discussed below.

The M2 money supply growth rate on a year ago increased from 6.08% two weeks ago to 6.54%, the highest reported since October last year. The growth rate in Bank Credit also picked up and at 3.07% was the highest growth rate compared to the same week last year since July 2013. It still however remains more than half as low as the long term average of 6.41%.

Compared to a year ago, Bank Credit expanded USD 308.7 billion (USD 25.7 billion a month). Of this growth, Loans & Leases made up USD 285.7, or 92.6%, while increases in the holding of Securities made up the rest, or 7.4%. Increases in Commercial & Industrial Loans made up 56.3% of the growth in Loans & Leases, while growth Other Loans made up 23.6%. The rest was made up of increases in Real Estate Loans and Consumer Loans.

The growth in Commercial & Industrial Loans has picked up some serious pace in recent months. At 10.45%, the current year on year growth rate is the the highest it's been for a year leading to an increase of USD 160.9 billion in loans outstanding over the last year. This should be welcomed news for those complaining about banks not lending to businesses.

The 10-year treasury yield declined 9 basis points on two weeks ago and is now down 37 basis points since 27 December last year. The spread between the 1- and the 10-year yield has now narrowed 37 basis points since 27 December.

The tables below summarise some of the key developments in the monetary statistics.