Saturday, April 7, 2012

Bank lending continues to pick up, liquidity is plentiful

Outstanding bank loans to small and medium-sized businesses have expanded by almost $200 billion in the past 18 months, as this chart shows. Moreover, loan growth has been accelerating: in the past six months C&I Loans are up at a 13.8% annualized rate, the fastest rate since the recovery started.

Consumer credit outstanding, shown in the chart above, is also on the rise, having expanded by $128 billion in the past 18 months, and at a 6.5% annualized pace over the past six months.

Increased bank lending is good evidence that banks are beginning to use some of the $1.6 trillion of new bank reserves that the Fed has created in recent years.

Required reserves have more than doubled since 2008, another sign that quantitative easing has resulted in a meaningful expansion of the money supply via increased bank lending and increased liquidity.

M2, a broad measure of liquidity, has grown at above-average rates in recent years, driven in large part by a flight to the safety of bank deposits in the wake of the financial crisis of 2008 and the Eurozone crisis of last year. Savings deposits now comprise almost two-thirds of M2, and their $2+ trillion growth in the past 3-4 years has been the principal driver of M2 growth.


BBL Jr said...

Scott i follow the bank lending and the consumer credit numbers but I am bothered by the fact that student loans ( a portion of the credit totals) are responsible for more than 100% of gains in consumer credit since the bottom in 2009. Does this not trouble you?

PD Dennison said...


There is a lot of talk about the effect of $4.00 gasoline on the consumer and economy in the US.

Have you examined this impact or have any insight into what the impact might be? If gasoline where to stay near or around $4.00, what would the long term impact be?


McKibbinUSA said...

The good news is that greater liquidity is not needed for US companies to thrive in the global economy -- what is needed is access to bargain basement labor, natural resources, and technology, all of which are abundant in the world today -- I believe that the largest firms in the US are on their way to a recovery, which will then accelerate their flight from the US -- the future specter of a California and New York default, together with future prospects for political instablity and insurrection, make the US a relatively lousy place to "set up shop" -- those with means and world-class skills will find their talents and money better treated overseas -- unfortunately, those earning less than $250,000 annually would be wise to prepare for the imminent emergence of public labor strikes, widespread disruption of public services, random street violence, wanton lootings of neighborhoods by roaming bands of homeless refugees, and the many other side effects that accompany class warfare and political instablility -- once public employees begin to see their career prospects curtailed and their pensions adjusted downwards, the daily lives of everyone in the private sector will be effected negatively as described above -- in other words, now is the time to take cover...

Benjamin Cole said...

"Required reserves have more than doubled since 2008, another sign that quantitative easing has resulted in a meaningful expansion of the money supply via increased bank lending and increased liquidity."--Scott Grannis.

What!!?? What? What!!!

Do my eyes deceive me? Is this an implicit endorsement of QE? Seems to me, that Scott Grannis leaned against QE1 and QE 2 at the time, but since has come to at least abide by such sacrilege.

This makes me think the QE was flawed in one regard, both for real and PR reasons: It should have targeted not dollar sums of QE purchases, but rather increases in nominal GDP.

In other words, Bernanke should have announced the Fed will buy $100 billion in Treasuries until we see nominal GDP rising by 7 percent a year for six quarters, or something to that affect.

The market would have regime certainty. Right now, I have no idea of the Fed will start fighting global commodities inflation again, or drive interest rates even further down from here, or engage in QE, or Operation Twist or who knows what.

It is a hide-and-seek, peek-a-boo Fed. I am supposed to buy and renovate warehouses with a Fed like this? On top of my local government?

I encourage Scott Grannis and all other to consider Market Monetarism. BTW, John Taylor (he of Taylor Rule) just endorsed a new book by Robert Hetzel, a Market Monetarist. They say this book is worth reading, I have not gotten a copy.

Now, if only Romney and Bernanke can get on board too.

JGW said...

"Liquidity" may be plentiful, but is it just an illusion or, in other words, a trap?

Benjamin Cole said...
This comment has been removed by the author.
Benjamin Cole said...

I meant to write, "the Fed should buy $100 billion a month in Treasuries until nominal GDP rises by 7 percent for six consecutive quarters."

jonathan smith said...

Why would total U.S. Savings be a better yardstick than, say the sum of WIMFNS (total Institutional Money Market Funds), WRMFNS (total Retial MM funds) and WSMTMNS (passbook savings + CD's under $100k), available as part of H.6 Money Stock Measures?


Jonathan Smith

McKibbinUSA said...

The WSJ is reporting today that large US firms are in great shape financially, with little need for more borrowing, so efforts by the Fed to make capital more plentiful to large firms is truly overkill at this point -- more at:

The reality is that large companies in the US are beginning to prosper given the lavish monetary support large firms have enjoyed under the Bernanke Fed -- the Fed strategy of marginalizing the capital needs of Main Street and states is certainly working for large firms -- in the meantime, the Main Street depression has fallen off the radar leaving millions in America with the prospects of distitution at the hands of Federalism -- the emerging separation between Federalists and Main Street is not likely to go well for Main Street, which has essentially no support in either the Republican or Democratic parties other than a small band of Tea Party activists who have apparently lost their way in the past six months -- in the end, big business and big government will win the day in America -- the good news is that spells bargains galore all along Main Street for those with cash to invest -- also, people holding world-class skills are finding their earnings set more by the global markets than local markets, meaning that those with skills are likely to enjoy ever increasing premium wages given the the emerging framework of restructuring in America -- in the final analysis, prudent investors will bank upon the successes of the emerging Federal-corporate partnerships that includes the largest firms in the US, all while the situation along Main Street remains dire -- however, the real bargains are along Main Street at this point -- stocks are also going to head up, but at a much slower clip than recently experienced, slowly approaching a DOW of at least 75,000 by 2035 -- now is the time to buy equities and world-class skills, and to take whatever actions necessary to avoid being included with the "riff raff" society earning less than $250,000 annually -- now is the time to acquire equities of all kinds while they are still cheap...

McKibbinUSA said...

PS: Gasoline prices in Europe are topping $8-9/gallon -- clearly, energy firms (and their dividends) stand to prosper given their pricing flexibility -- gasoline prices will follow Europe's lead over the coming decade by closing in on similar prices -- that means probable rich dividends from energy stocks in the coming years -- be sure to get your share by adding energy stocks to your portfolio now before it is too late -- the long-term trends in equities look fantastic -- "...the future looks bright, gotta wear shades..."

Squire said...

If you are part of the McKibbin riff raff move to high income areas and get jobs servicing the well to do. These places will be relatively safe as the well paid police and firemen will more protect the well to do.