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Global money round-up May 2016

Posted by Tim Congdon in News Archive | 0 comments

In last month’s note from International Monetary Research Ltd. it was suggested that “money growth trends in the main countries are not far from perfection at present”. Not much has changed in the last few weeks to alter that assessment, although it has to be said that in most of the six jurisdictions (apart from India and perhaps China) the signs are of a slight acceleration in money growth. (In my view, the ideal annual rate of increase in money in the high-growth developing economies [i.e., China and India] lies in the 10% - 14% bracket, while the corresponding figure for the developed countries [i.e., the USA, the Eurozone, Japan and the UK] is between 2% and 5%, perhaps 6% at most.)  Contrary to much tattle from the commentariat, aided and abetted by the Bank for International Settlements, “quantitative easing” in the Eurozone has been a clear and significant success. Macroeconomic conditions have improved markedly since late 2014, with Germany in particular contributing to the demand revival. (German broad money growth in recent months has been at very high annualised rates of over 7%. No wonder the Bundesbank is worried!) As for most of 2016, the oil price is being seen in financial markets as a proxy for global demand conditions. With Brent spot moving through the $50-a-barrel level, confidence is growing that demand in the main economies should be sufficient to deliver at least trend growth (say, 3% - 3½%) in world output in 2016. In my view, nothing in the recent banking and monetary policy developments to justifies a radically different view about 2017. If anything, my surmise is that virtually zero interest rates will encourage higher money growth, but the worry remains the regulatory attack on the banks.  It would, be nice if the delinquent economies of 2015 and 2016 (Russia, Brazil, Venezuela), where output has been falling, see political changes/transformations and a return to output growth in 2017 or 2018  

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