Kevin Spires, CFA, FRM
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.
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 four years, the Monetary Base has expanded threefold, but Consumer Prices have remained quite low at around 2%. One reason why Consumer Prices have been relatively stable with the explosion in the monetary base is that much of the increase in the Monetary Base was kept by banks as excess reserves at the Fed. In other words, much of the Fed monetary stimulus was lying fallow and not being lent out to consumers.
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.
Tell us your thoughts...
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.
Tell us your thoughts...