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Bland Unsight

Underwhelming Credit Boom Continues To Underwhelm

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It's been about six months since I updated graphs of some key Bank of England statistics on the total amount of debt outstanding.

Last time round we had some posts from FreeTrader, so this time round I've included a comparison graph that FT provided last time on the thread You Call That A Boom?

The measure I graph on its own (LPMBZ2A) is pretty self-explanatory. Comprehension of the other measure is a little above my pay grade so I'll just quote FreeTrader's comment:

LPMBD93 is basically bank deposits of households and private non-financial corporations (not to be confused with M4ex which is a somewhat wider measure of broad money). Up until 2002 this metric slightly exceeded the household debt measure, but then the situation reversed and there was a growing 'funding gap'.

As we know, the household debt measure flat-lined when the credit crunch hit, and as loans create deposits we might have expected our broad money measure to do the same. However the BoE stepped in with QE with the deliberate intent of increasing the money supply in the absence of lending growth. This is why those who say QE has failed because it had no effect on lending have missed the point – the BoE made no secret of the fact that they didn't expect much of a lending response; money printing would take up the slack.

The LPMBD93 measure has increased by £211bn since QE started and the gap between the two measures has now closed. So it's going to be interesting to see what happens from here onwards because QE has finished (for the moment at least) but there's a big push from both the govt and BoE to get households to borrow more.

Anyway - to the graphs

LPMBZ2A.png

Individuals+and+M4.png

You can see that despite the monumental effort to get households borrowing and spending and all the talk of the 'recovery' being based on people borrowing and consuming, the actual increase in how much people are borrowing is very, very weak.

Since April 2013 the change in ouststanding lending to individuals has been consistently positive for a run over a year, and that hadn't happened the crisis hit in late 2008. Further in the last six months the monthly increase has been between £1,000 million and £2,000 million and was £2,975 million in March 2014 - the latest month for which data is provided by the Bank of England Interactive Database - but as you can clearly see the rate of credit growth is still puny compared to the boom years where we'd typically add £8,000 million to £10,000 million month after month, year after year.

Expressed as a percentage of the total outstanding, during the boom years monthly credit growth would be typically 0.8% of the total outstanding (the average for August 2003 to July 2008 is 0.78%). For the last six months its 0.12%.

Osborne is running up the debt pretty fast to achieve so little. Surely, we're just delaying the inevitable?

Edited by ChairmanOfTheBored

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this proves the BoE can claim it IS vigilant, it IS controlling things, and they see no bubbles.

For the window they look out of is the wrong one for the key issue of this web site.

there is no bubble in those graphs.

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this proves the BoE can claim it IS vigilant, it IS controlling things, and they see no bubbles.

For the window they look out of is the wrong one for the key issue of this web site.

there is no bubble in those graphs.

On the contrary, the aggregate of both curves is exponential - although more shallowly after 2008. An unmistakable signature of an underlying bubble. This is important. What matters most to Osborne is not the level of debt, or the rate of change of debt, but the acceleration of debt - since this has been established empirically to correspond with changes in demand. It's no coincidence that the recent spurt of growth has happened since the start of 2013 when both curves are pointing upwards again simultaneously.

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On the contrary, the aggregate of both curves is exponential

If you're looking at the same graphs I can see in Chairman's post, I can only conclude you have no clue what you're talking about.

If you had rock-steady economic growth year by year (e.g. 2% every year), that would be exponential. And probably healthy, as in no more boom and bust.

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exponential growth in money supply (Including credit) is OK if you accept inflation as a given, which they do, AND that actual wealth grows or stays the same to back it up.

However, to acheive this artificial inflation, as per the BoE Target of 2%, then this means that assuming constant inflation, ie money supply v assets created, that money will half in value every 35 or so years. This is the target and it is entirely deliberate and artificial. There is no headroom for asset deflation, not if we want all the banks to survive, as we collectively appear to do.

Butter, I bought in 2007 for around a pound, is now selling for around £2 in some outlets...that is more like a 10% inflation...and growth? well, even GDP is way way below that figure....And as you will know, I have little faith in that as a legitimate measure of real wealth growth.

Of course, butter is but one component of wealth...although I dont recall it as being in short supply.

Edited by Bloo Loo

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exponential growth in money supply (Including credit) is OK if you accept inflation as a given, which they do, AND that actual wealth grows or stays the same to back it up.

Not true.

Growth in the money supply doesn't imply inflation. Only growth over and above underlying economic growth is inflationary.

A target of 2%/year rise in M4 money supply when they gave interest rates to the BoE could've delivered a whole lot more stability. That way our interest rates would've been set to manage the UK economy, rather than to accommodate the rise of China! But politically it wouldn't've delivered that Blair Feelgood that was the bubble before it burst.

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