The author has been described by News Ltd as an "iconoclast", "Svengali", a pollie's "economist muse", and "pungently accurate". Fairfax says he is a "Renaissance man" and "one of Australia’s most respected analysts." Stephen Koukoulas concludes that he is "85% right", and "would make a great Opposition leader." Terry McCrann claims the author thinks "‘nuance’ is a trendy village in the south of France", but can be "scintillating" when he thinks "clearly". The ACTU reckons he’s "an enigma wrapped in a Bloomberg terminal, wrapped in some apparently well-honed abs."

Monday, November 1, 2010

The US cash-credit log-jam

I've talked about this before: the fact that despite the Fed injecting more than US$1.5 trillion worth of cash into the US economy, the money is being hoarded by financial institutions--it is not being lent, as the Fed had hoped. The following three charts from Westpac highlight the problem. The first shows the cash held by private institutions with the Fed. The massive spike in reserves resulted from the Fed's purchase of the securities held by financial institutions as part of the first round of so-called 'quantitative easing' (QE). The next two charts show the quarterly change in bank and non-bank credit. While the cash held by institutions has rocketed through the roof, new credit creation is declining. The explanation put to me by hedge funds, which has also been posited by Alan Greenspan, is that this is partly a function of extreme regulatory uncertainty--banks don't want to lend because they don't know how they will be regulated.