By Luis Arroyo, in Madrid | The US economy is on its way up to the growth heaven while others, like Europe, live under the knife.
Broad money or M3 volumes have increased in the US by 10pc. In terms of what it is strictly required, the Federal Reserve is fulfilling its duties. The broad money supply includes factors of money supply and money and credit demand, which means that there is activity in all money and financial markets. The policies implemented since the crisis began are starting to take effect: confidence is finding its path back to the markets. The real economy grows, and finance roll on.
On the other hand, M3 volumes in the euro area have just taken flight to 2.5% per year. Moreover, we know this short rise is very unevenly distributed: in the south, deposits fall whereas in the north they increase. Therefore, the M3 falls in the south and increases in the north so what we see here, the average, is not representative of anything, really.
And let’s note that the data includes last January. In other words, LTRO1’s input has been negligible.
Corollary: we still are far away from returning to normalcy, to growth, and far from being able to stop further increasing unemployment.
The usual suspects would say that Bernanke is driving inflation. Maybe. But for now their inflation is below that of the euro, and there are few expectations that the trend changes any time soon. Moreover, inflation to some extent re-establishes forecasts of future growth, as my friend and economist Joao Marcus Marinho Nunes demonstrated in this post, this-stock-market-rally-is-not-for-real, and this graphic…
I am well aware that Marcus will not agree with me that Bernanke deserves praise. All I do is to compare, though.