Australian money supply (Apr10) – stalling

Posted on 01 June 2010

The RBA published the monetary aggregates yesterday (here). M3 is threatening to join it’s international brethren:

While the US has been struggling with a contracting money supply, Australia remains in positive territory. Still with the credit creation machine at its apex from a housing perspective and our funding needs likely to require more homegrown capital going forward, the liklihood of growth in money supply becoming free and easy again is pretty slim.

As to the credit markets, debt funding in the corporate markets continues to contract:

While the housing sector is struggling with higher interest rates and the debt burden that accumulated over the last decade in particular:

An interesting perspective on the rise and rise of household debt can be seen in the following chart that shows the change in debt on a quarterly (and in light blue behind – monthly) basis:

Here we have taken the quarterly change in debt and annualised it to get a sense of the growth rate over time. It’s astounding that debt was able to grow at over 10% compound rates for nigh on 15 years. No wonder our household debt to GDP ratio has pushed so high – sounds suspiciously like we have been living beyond our collective means:

Given the deteriorating global environment and the recent interest rate rises, it’d be a fair bet that growth in household debt has peaked for this cycle and that the recent months plunge is an sign of things to come.

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