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Bank Credit Goes Negative, Scaring the Monkeys

There are 8 billion monkeys, and the bosses are desperate to keep the monkeys dancing.  So they feel they have to keep killing more chickens to keep the monkeys in line.  The parable works with 1 boss and 1 monkey, but that’s not reality.  As this continues, the monkeys are slowly starting to figure out the game.  At some point, the monkeys will look around and realize just how many monkeys and just how few bosses there actually are.

user profile picture davefairtex Aug 13, 2023
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This week we saw both a CPI and a PPI report, plus the usual suspects:

  • Consumer Price Index (CPIAUCSL): +0.17% m/m, prior +0.18% m/m.  Neutral.
  • Producer Price Index (PPIACO): -0.26% m/m, prior +0.08% m/m.  Deflationary.
  • Fed Balance Sheet (WALCL): +1.47B w/w (+0.02%), prior -0.45% w/w.  Neutral.
  • Total Bank Credit (TOTBKCR): -35B w/w (-0.2%), prior flat.  Deflationary.

While the CPI looks to be more or less where the Fed wants it to be (roughly 2%, annualized), and the PPI appears “deflationary”, bank credit is now in negative territory on a y/y basis, falling -0.17% this week alone.  This is the first time bank credit has been negative on a y/y basis since 2009.   This week’s plunge is pretty dramatic – annualized, it would be a 10% drop (52 * 35.8B / 17.2T).  This is extremely deflationary.

Doing a deeper dive into bank credit, I looked at the components FRED provides here to see which areas are getting hit by shrinking bank credit.  Long story short: banks have sold off or stopped buying/making Treasury Bonds (-7.6% y/y), Other Securities (-4.7% y/y), and Commercial/Industrial loans (-1.75% y/y), while they’ve modestly increased lending to consumers and real estate (roughly 2-3% y/y).  Given the huge expansion in US Treasury debt, the fact the commercial banks are fleeing this market is bad for US Treasury yields, and the plunge in Commercial/Industrial lending looks bad for industry too.  Even loan growth of 2-3% in the rest of the sectors isn’t great.  I provide a chart of the values for “the rest” below – they are in dollars ($trillions).  I know this is a lot of “inside baseball”, but – in the debt-based money system, the money supply must continually expand, or the interest on the debt cannot be paid – and not all sectors are being hit equally.  Note the series below are updated w/w.

This week, the buck rallied strongly, up 0.85 [+0.84%] to 102.69, breaking back above the 50 MA.  The buck has resumed an uptrend in all 3 timeframes, although the monthly uptrend is still very weak.  The other sides of the trade did poorly: EUR: -0.83%, GBP: -0.67%, JPY: -2.20%, AUD: -1.8%, RMB: +0.96%.  Note: for RMB, up is down.

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