All Is Not Well

Corporate loan delinquencies and charge-offs at US commercial banks have recently been updated to the end of Q4 2015. As we suspected on occasion of our last update, the annual change rate in the sum of the two series has continued to accelerate.

Photo credit: AP

It stands now at a level that exceeds the peak readings of both the 1990 and the 2001 recessions, and is only rivaled by the 2008 disaster. Evidently, everything is not awesome in the US economy. We have included the Federal Funds rate on the chart as well, to once again highlight the curious fact that this is happening with the FF rate still stuck at rock bottom levels.

Annual rate of change of corporate loans delinquencies & charge-offs at US commercial banks vs. the Federal Funds rate. The surge in dud loans continues unabated, and already exceeds the worst levels of the 1990 and 2001 recessions

Money Supply Growth Decelerates Further

In our last update on this data series we wrote:

“[T]his is a sign that inflationary US bank credit expansion to businesses will likely continue to stall and as a result US money supply growth should continue to decelerate.”

However, the annual growth rate of the broad true money supply TMS-2 has actually received a bump at the turn of the year, due to a large jump in funds held at the Treasury’s general account with the Fed, as well as (so we suspect, anyway) temporary repatriation of USD denominated funds held in accounts abroad, very likely for reasons of regulatory window-dressing.

Don’t hold us to this explanation, but the money has to have come from somewhere. With QE out of the picture and bank lending growth not accelerating further, the relatively high annual growth rates in deposit money recorded at year-end were very likely due to shifts in cross-border USD liquidity that temporarily boosted domestic money supply figures.

If we look at the narrow monetary aggregate M1 though, which is updated weekly rather than monthly (and very closely tracks the narrow true money supply gauge TMS-1), we can see that there has indeed been a quite sharp deceleration in US money supply growth. As we have pointed out previously, we expect that the significant downshift in narrow money supply growth rates will eventually impact the broader money measure TMS-2 as well. We will just have to wait a little longer for confirmation.