Tuesday, March 24, 2009

UK Money supply growing at 18 percent



"the growth rates of money and nominal demand have slowed sharply."

Mervyn King, in this letter to the Chancellor, March 23rd 2009

Actually, the growth rate of money is accelerating, Mervyn. In January, it hit almost 18 percent. Moreover, it is growing faster than at any time since February 1990.

I am sure that there is nothing sinister here. Mervyn King isn't trying to mislead the Chancellor about monetary growth. After all, money supply data is public. If Alistair Darling was interested, he could ask his permanent secretary to download the data, just the same way I did.

The serious issue is here is that no one bothers to watch the money supply numbers. Those jokers down at the Treasury and the Bank of England do not think the M4 growth matters much. That is why the Bank of England could make such a elementary mistake as claiming that monetary growth is falling, when in fact, it is accelerating. It is also why the Treasury failed to pick up the mistake.

Foolishly, both the Treasury and the Bank of England think that there is no relationship between the growth of the money supply and inflation. We will see about that.

19 comments:

  1. monkeys, every one of them.

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  2. Did he say "m4" Alice? No. He said, the growth rates of money. He probably means the monetary base. And indeed, the growth rate of narrow money (M0) has slowed.

    You can accuse him of a lot of things, but Mervyn King most definitely understands and watches the money supply.

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  3. Anon 14:46

    Hold on there, a sec.

    The BoE do not publish an M0 series. They discontinued it in April 2006.

    Alice

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  4. http://forums.sundaysun.co.uk/viewtopic.php?t=15728

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  5. I'm not sure why you think that. I just got it from the BoE website via bloomberg. goes up to 28 Jan 09 for me.

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  6. Go to http://www.bankofengland.co.uk/mfsd/iadb/NewInterMed.asp The series for m0 growth is LPWBF83. You can see there that M0 growth has indeed slowed.

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  7. Dear Alice, I am REALLY grateful to you for blowing away the haze over inflation. I must confess to having been confused myself.
    If I am allowed to ask your further advice:
    1. How long do you think before the 18% increase in M4 feeds through to CPI and RPI?
    2. Will RPI remain lower than CPI because of the housing market?
    I would be REALLY grateful for your opinion on these 2 questions!
    Best wishes.
    Housing Bear

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  8. http://www.bankofengland.co.uk/mfsd/iadb/index.asp?Travel=NIxSTxTAx&levels=1&FullPage=&FullPageHistory=&Nodes=X4190X39867X39927&SectionRequired=A&HideNums=-1&ExtraInfo=false&A39928XBMX4190X39927.x=3&A39928XBMX4190X39927.y=6

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  9. Do they really have a choice? As, we, Americans debase the reserve currency, G20 has to come along for the ride.

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  10. anon

    You are not talking about notes and coins are you?

    As for as I can see, M0 is discontinued.

    Alice

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  11. Anon 16:47

    1. 18 months to two years, perhaps a little sooner.

    2. Yes, lower mortgage rates feed directly into a lower RPI. However, the RPI will shoot up as soon as the temporary VAT cut is removed.

    Alice

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  12. http://www.order-order.com/2009/03/hannan-tells-gordon-he-is-pathologically-incapable/

    Watch the video.

    I bet the BBC make no mention of it. How can Brown survive such an onslaught ?

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  13. Presumably you are saying the increase in money supply means inflation.
    It makes no difference what the money supply is if the banks are hoarding and the money doesn't get into the real economy. Money supply is irrelavant therefore.
    It is still deflation into the forseeable future

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  14. Josh said:

    Presumably you are saying the increase in money supply means inflation.

    Actually, the increase in money supply is inflation. The price rises will follow later.

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  15. 1. 18 months to two years, perhaps a little sooner.

    2. Yes, lower mortgage rates feed directly into a lower RPI. However, the RPI will shoot up as soon as the temporary VAT cut is removed.

    Alice

    Thanks Alice, really helpful Comment.

    Housing Bear

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  16. Fredom and whiskey.

    "Actually, the increase in money supply is inflation. The price rises will follow later."

    Heard of Japan?

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  17. Unfortunately we are not Japan. They have a culture of saving, and not spending.

    We have a culture of spending like a sailor on shore leave after a 6 month voyage, in fact not only do we spend the money we've got, we borrow shed loads more given half a chance and spend that too.

    The money the govt is shovelling into the economy is going to get spent, don't worry about that. Mostly on stuff from abroad of course.

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  18. ""Actually, the increase in money supply is inflation. The price rises will follow later."


    only if the velocity of money is held constant. The banks in japan held tons of toxic assets usually based of real estate market and all monetary expansion was held by them, and consumers were also saving like hell.

    Now there are toxic assets based on real estate and derivatives based on them. We still could have deflation, since the amount of debt that will default in the US and the UK is extremely high relative to GDP. There is a race right now between monetary expansion and toxic assets destruction. People are assuming based on their preferences that one or the other will win. If the former wins, we get inflation; if the latter, deflation. and I don't data supporting either one conclusively

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  19. People are assuming based on their preferences that one or the other will win.

    I think BOTH will win: You will have Deflation in spades regarding assets while living costs and taxes will Inflate way beyond any hope of maintaining a decent living standard - unless one is a banker or a politician.

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