The U.S. Monetary Base has exploded the past four years, but this explosion has not fed through into Consumer Prices -yet. An interesting divergence has taken place over the past year that I believe is foreshadowing more pass through of the accumulated monetary stimulus into the Real Economy.
Over the past year, something has definitely changed in this dynamic. While the Total Monetary Base is mostly flat, the Monetary Base adjusted for Excess Reserves is up over 10% - a clear divergence.
Excess Reserves have started to drop and Bank Credit Growth is excelerating with C&I loans, Consumer Loans, and Real Estate Loans all expected to grow strongly over the next several quarters. The Big Banks are finally turning all the monetary fuel into more lending. On this basis along, I would be very skeptical that the Economy will head into a recession anytime in the next several quarters.
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