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Economic weather report: Money supply growth weak

Posted in News July 15, 2009 - 11:25am, Bernard Hickey

Bernard Hickey delivers an Economic Weather report in association with ASB, including a look at this interactive money supply growth chart showing the economy remains subdued despite the recent sharp falls in interest rates.

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    • We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

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    by raf | 15 Jul 09, 2:57pm

    See Japan 1990s for further

    See Japan 1990s for further evidence of this.

    Business lending is the key to a recovery. Let's stop worrying about house prices and get some capital out to those who can make it work.

    This is the idea behind the proposal to inject new liquidity into Kiwibank and start a new business lending service. That is where we are being squeezed badly.

    by roelof | 15 Jul 09, 10:02pm

    I've always felt that the

    I've always felt that the price deflator that should be used to measure REAL GDP, should be a function of Money Supply growth.

    Looking at the above graph... The question that I ask is, How was money supply ever allowed to grow at rates like 15% ...??? It is outrageous.

    It does not take a brain surgeon to wonder how such growth rates would work its way thru the economy...!!!! Would it cause "flood damage"..?

    It is modern Central Bank ideology to allow money supply to be elastic and manage it indirectly thru influencing the demand for money..... The flaw in that premise is that all individuals act rationally...!!!!!! (yeah..right )

    Maybe it is time to revisit some of these economic ideologies.... in the clear sunlight of the 21st century.
    How about some common sense...

    2.5% growth in money supply is not a symptom of sickness.... 15% growth is... ( in my opinion)

    by raf | 15 Jul 09, 10:29pm

    Roelof, It reveals a major

    Roelof,

    It reveals a major flaw in the monetary policy framework. I wrote about this in my submission to the Monetary Policy Inquiry. Did anyone notice? Nope.

    There are some comments on this over at TVHE

    http://www.tvhe.co.nz/2009/07/15/why-monetary-policy-to-target-asset-pri...

    - The CPI is flawed therefore monetary policy is flawed (even if we believe interest rates can control the supply of money).

    Any comment Mr B?

    Bernard, Perhaps this would be a useful starting point for your next interview?

    by roelof | 16 Jul 09, 8:48pm

    Raf,... Yes the CPI is

    Raf,... Yes the CPI is a really inadequate proxy for inflation.... In a closed economy it had some relevence.... but in a Global world it is not so good... (Non Tradable inflation is more meaningful)

    In the global world... Effects of high levels of monetary inflation can manifest as a Balance of Payments or Current Acct deficit... ( a good book is "the Dollar Crisis by Richard Duncan)

    Rather than more money chasing the the same amount of goods ( closed economy) we have more money simply buying more goods ( from China) ...and prices stay the same .
    BUT with non tradables and Real estate ..... more money supply = higher prices.

    SO yes this whole monetary policy thing , based on the CPI , is terribly flawed...
    The scary thing is that it seems so obvious...

    A cost of living index ,as u suggested in your link , is a really good idea...

    just my thoughts