BNP Paribas On Global Liquidity Floods

Look for your life rafts, as BNP Paribas notes in its Global Outlook yesterday:

Narrow money in the developed world is also growing again, thanks mainly to the US, where the central bank has expanded bank reserves by a further USD 200bn to compensate for a winding down of the Treasury Supplementary Financing Facility.

In advanced economies, there is still no sign of an acceleration in broad money…
Although narrow liquidity in the advanced economies jumped some time ago, there is still little sign of that translating into a pick-up in the growth of broad money. Our broad liquidity aggregate across the G7 is growing by less than 5% y/y (Chart 2), its slowest rate of growth since August 1995. As a result, the money multiplier across the advanced economies remains moribund with no sign of a recovery.

There has been a particularly significant deceleration in broad money growth in the
eurozone, which was the disproportionate driver of broad liquidity across the developed world before the crisis. M3 growth there has slowed by nearly 11 percentage points since the start of 2008 to 2% y/y in September – its joint-slowest
rate on record.

Much has been made of the surge in broad liquidity in China. Incorporating it into our
measure lifts the rate of broad money growth considerably, but there is still a significant deceleration in the aggregate measure (Chart 2).

…or credit growth
On the asset side of the balance sheet, the counterpart to a slowdown in the growth of broad money has been a sharp deceleration in the growth of credit to the private sector.

In contrast, the downward trend in total credit growth is much more modest, reflecting increased lending to governments and highlighting the risk of government borrowing crowding out private sector borrowing.

Click on charts, courtesy of BNP Paribas.
Reflation floods and dopamine ... organic lift in risk asset prices! Smoking ...