Summary
-
The world’s central banks have pumped massive amounts of liquidity into the economy and the global money supply is without a doubt accelerating. These exceptional efforts have had a deep impact on all financial markets, so much so that the financial crisis is now definitely drawing to a close.
-
Still, some observers continue to be concerned about the economy because bank credit aggregates do not seem to have changed tone yet.
-
As it turns out, credit aggregates make very poor leading indicators of the economy for a very simple reason: They more often than not trail activity.
-
Actually, credit is to the financial markets what nonresidential construction is to the housing sector: a lagging indicator of activity. In fact, consumption growth tends to decline before credit growth in periods of recession and tends to rebound before in periods of recovery.
-
Hence, in our opinion, the improvement in the financial markets speaks much louder than does the present behaviour of credit aggregates.
