Money Supply growth has both ramped Bitcoin and made it even more unstable

Let me welcome you to 2021 as the main financial trading year catches up with the calendar one. It is a time of year to mull whether the Who will be right or not?

Meet the new boss
Same as the old boss

The good news comes from the vaccine rollout with the Oxford vaccine programme beginning today and the bad from the case numbers in the UK which seem set to add to the restrictions on our lives.What can central banks  do about it well they can visit the outer limits of monetary policy as below.

The Central Bank of Egypt (CBE) has launched a new EGP 15bn initiative to finance the dual-fuel vehicle conversion plan, with a lump-sum return of 3%.
In a Sunday letter to banks, the CBE said that the initiative aims to support the government’s ambitious, recently announced multi-year plan to replace car engines powered by traditional fossil fuels with dual-fuel engines that run on both petrol and natural gas.

Accordingly, the central bank will provide the needed financing through this initiative at low-interest rates.

Its Board of Directors approved the decision, with the financing to be made available through banks at a flat return rate of 3% used in granting loans. ( alnaasher.com)

That sort of mission creep will no doubt be copied by others and is one of the factors behind this development which has really gathered pace in the new year.

Bitcoin climbed above $34,000 for the first time on Sunday, extending a record-breaking rally in the volatile cryptocurrency that delivered a more than 300 per cent gain last year. With trading in key financial markets yet to commence in 2021, bitcoin has resumed its dizzying ascent, rising more than 10 per cent in the first few days of January. By late afternoon in London on Sunday, it had given up some of its early gains to dip just below $33,000. ( Financial Times)

As so often they are rather tardy whereas back on November 17th when the price was half of what it is now I pointed out this.

Another way of looking at the change in perception of Bitcoin is the way that central banks are now looking at Digital Coins in a type of spoiler move as it poses a potential challenge to their monopoly over money.

The price is volatile and there are dangers in using a marginal price for an average concept but a “value” of over US $600 billion will be giving central bankers itchy shirt collars. Also frankly it is another sign of inflation.

UK Money Supply

Let me pivot now to a factor behind this announced by the Bank of England this morning.

Overall, private sector companies and households significantly increased their holdings of money in November. Sterling money (known as M4ex) increased by £31.9 billion in November; broadly in line with October which saw holdings increase by £33.5 billion. This is similar to strong deposit flows seen between March and July, which saw money holdings increase by £41.1 billion on average each month.

That takes the annual rate of growth of the Bank of England’s preferred money supply measure to 13.9%. This is significant not only for the rate itself which in theory feed straight into nominal economic growth but because it comes on the back of an inflated money supply which now totals some £2.53 trillion. Or as MARRS observed.

Pump up the volume
Pump up the volume
Pump up the volume
Pump up the volume

If we switch back to Bitcoin we see another factor in its rise. UK money supply is only a bit part player but we see similar ramping of the money supply pretty much everywhere we look. I get regularly asked where it goes? Also where the inflation is? Well…..

House Prices

Whilst we were off on holiday ( a stay at home one) the Nationwide released this.

“Annual house price growth accelerated further in
December, reaching a six year high of 7.3%, up from 6.5% in the previous month. Prices rose by 0.8% month-on-month, after taking account of seasonal effects, following a 0.9% rise in November. House prices ended the year 5.3% above the level prevailing in March, when the pandemic struck the UK.”

The Bank of England was cheerleading for this sort of thing in its release earlier.

The mortgage market strengthened in November. Households borrowed an additional £5.7 billion secured on their homes, following net borrowing of £4.5 billion in October. November borrowing was the highest since March 2016, and significantly higher than the average of £3.9 billion seen in the six months to February 2020.

But for it the party really got started here.

The continued strength in mortgage borrowing follows a large number of approvals for house purchase over recent months. In November, the number of these approvals – an indicator for future lending – continued increasing, to 105,000 from 98,300 in October (Chart 1). This was the highest number of approvals since August 2007 and recent strength in approvals has almost fully offset the significant weakness earlier in the year. There were 715,300 house purchase approvals up to November 2020, close to the number during the same period in 2019 (722,000).

So we now know something we had long expected which is that even an economic depression is not allowed to get in the way of house price pumping and rises. Or as the Nationwide put it.

“But, since then, housing demand has been buoyed by a raft
of policy measures and changing preferences in the wake of
the pandemic.”

Consumer Credit

By contrast there will have been wailing and gnashing of teeth at the Bank of England earlier over this.

Household’s consumer credit weakened further in November with net repayments of £1.5 billion; that followed a net repayment of £0.7 billion in October. The weakening on the month reflected a fall in new borrowing. Since the beginning of March, households have repaid £17.3 billion of consumer credit. That has caused the annual growth rate to fall to -6.7% in November, a new series low since it began in 1994.

The word repayment is like kryptonite to them. These are broad brush numbers with the only breakdown we receive below.

Within consumer credit, the weakness was broad based with net repayments on both credit cards (£0.9 billion) and other forms of consumer credit (£0.7 billion). As a result, the annual growth rates of both components fell further, to -14.5% and -3.0%, respectively. For credit cards, this represents a new series low.

I make the point because there was a brief spell we were updated on car loans but that soon ended. So I wonder what is happening now in that area? According to the UK Finance and Leasing Association or FLA then personal credit for new cars was down 17% in the year to October and down 10% for second-hand cars.

But the overall picture is of a collapse in credit card borrowing which maybe has led to this.

The cost of credit card borrowing fell by 47 basis points to 17.49% in November; a new series low.

I have followed it since the credit crunch began and all the various interest-rate cuts have until now bypassed it.

Mortgage Rates are rising

Apart from it we see that other interest-rates are rising.

The ‘effective’ interest rates – the actual interest rates paid – on newly drawn mortgages rose 5 basis points to 1.83% in November. That is close to the rate at the start of the year (1.85% in January)

Where did the Bank Rate cuts and bank subsidies ( Term Funding Scheme) go? It looks as though banks have simply boosted their margins. Especially as they pay ever less.

The effective interest rate paid on individuals’ new time deposits with banks fell by 3 basis points in November, to 0.50%, and remains much lower than in February (1.04%)………The rate on the stock of sight deposits remains the lowest since the series began, and 34 basis points lower than in February.

 

Comment

We see that in spite of the increasingly desperate effort to claim there is no inflation we do not have to look far to see it. Indeed this morning someone I consider to be something of a High Priest in the systemic denial has changed tack.

Ultra low interest rates raise asset prices hurting the young and those without wealth. ( Paul Johnson of the Institute for Fiscal Studies)

Why do I say denial? Well his 2015 Inflation Review told us this.

CPIH is conceptually the best overall measure of inflation in the UK.

Because it excluded the asset prices (house prices) he is now worried about. Indeed he thought making the numbers up was much better.

A home provides a flow of accommodation services that are
consumed by households. The rental equivalence approach estimates the price of consuming these services as being equivalent to what the owner would have to pay if renting the property.

Suddenly the house price rises are recorded as growth. The poor first-time buyer gets shafted twice. Firstly by higher prices and then by being told they are better off using the inflation measure recommended by Paul.

Next comes the instability created by a system built in sand and misrepresentations. Bitcoin is showing that by its drop to around US $30k as I have been typing this.

Lastly let me give you another example of reality being adjusted to suit a narrative. Remember the way that the present Bank of England Governor Andrew Bailey so botched an enquiry into overdraft interest-rates that they then doubled?

 Following discussions with reporters on how to account for the ending of fees and COVID support measures, these overdraft rates are now estimated to have been lower between April and September than previously thought, and similar since October.

So far though they seem to be failing.

The effective rate on interest-charging overdrafts was 20.62% in November, above the rate of 10.32% in March 2020 before new rules ending overdraft fees came into effect.

 

 

 

 

 

23 thoughts on “Money Supply growth has both ramped Bitcoin and made it even more unstable

  1. Happy new Year everyone but maybe not for those wanting to get on the housing ladder or those who have children wanting the same.

    I say that as though there may have been a slight increase in mortgage rates they are still relatively low historically.

    Put it this way even if interest rates rise to 2% it will still be cheaper to buy than rent for any properties under £300k on an interest only basis which is less than the UK average price of properties and as such I can see house prices rising further in the first quarter of this year.

    Some will say unemployment rising will make a difference but not necessary as lower priced houses as still ideal for buy to let investors seeking an income in a low interest rate environment.

    As for BITCOIN its a bit late now but these cryptocurrencies should have been made illegal some time back and sooner or later I get the feeling that a collapse will come.

    All it suggests to me is Joe Public lost faith in historic investments and they are prepared to gamble to make money.

    The sad thing is they are gambling on a fog which can evaporate at any time and some will end up with more than a bad cough.

    • Peter, you have as usual, got completely the wrong end of the stick, despite myself and others on here explaining why prices go up -loss of purchasing power – due to monetary debasement – money printing – you still believe Bitcoin (along with gold and silver)which is a protection against the very debasement of everyone’s hard earned money should be banned! The very thing that will save the ordinary Joe from the inevitable collapse of all these fiat currencies is bad according to you!

      The only fog that is evaporating is fiat currencies as people begin to realise that the massive debts of these governments is never going to be repaid and their respective currencies are totally worthless, backed by nothing and are now being constantly printed into oblivion by first the billion then trillion(what is after trillion?answers on a postcard please),this is the process that is taking place right now, unless a Bretton Woods MkII type of new monetary system is announced PDQ, they are all headed to zero, as the old line by Ernest Hemingway said to the question “how did you go broke?” – “gradually then suddenly”, faith in currencies is lost so fast there is little central banks can do to fix the problem as they have caused the problem to deteriorate to such an extent by their arrogance and hubris in thinking that they can literally get away with anything.

      • q:what is after trillion?

        A1: Lira
        A2: Zollars

        Forbin

        PS: Quadrillion or maybe we’ll get to Centillion ( 303 zeros, yes I had to look that one up! )

        and our old freind…. The googolplex is so large it doesn’t have any meaningful use yet—it is larger than the number of atoms in the universe.

        see? the CB’ers havent run out of ammo !

      • Kevin,

        You are entitled to your opinion but these cryptocurrencies will all end in tears at some stage and they are an illusion.

        • Fiat currency is the illusion; the old man behind the curtain pretending to be an all-powerful force.
          Five years from now, we are likely to be doing trade in barter, both goods & services, as cash will be useless for everything but starting a solid fuel fire, which is all we will be able to afford.

  2. Hello Shaun,

    Re : “CPIH is conceptually the best overall measure of inflation in the UK.”

    “conceptually ” there’s a weasel word if ever I herad one ……

    best overall measure , hmmm, except when compared to RPI.RPIX and probably a few others too!

    Its used to reduce HMG outgoings such as benefits , ask why we still use RPI for tax increases and not CPI ….. will anyone in MSM ? no?

    Forbin

    PS: as we celibrate the return of the Arch Angel Vaxx , please consider this:-

    Coronavirus Cases: 85,593,487

    Deaths: 1,852,795

    Recovered: 60,554,336 <<<<<

    I greive for those lost and I am joyful for those who survived and that the CMR is less than 3% now and falling ( MSM fear mongering forbids the reporting of this ) .

    • Hi Forbin

      Yes at some future date we will be told that the “concept” was wrong and that no-one apart from some misguided financial terrorists could have predicted it.

      As to Corona my understanding is that the treatments are now much improved but I am out of touch with my source from Guys Hospital because Battersea Park running track is shut. Or if you can hold a straight face it opened again yesterday just in time to be locked down.

      • Hi Shaun,checkout Ivermectin, doctors prevented from prescribing it despite its effectiveness,governments are all going down the vaccine Rabbit hole,as this just matches up with the surveillance, control and dependency that will come next.

  3. I would suggest that the Govt’s. intention to vaccinate even those who have previously tested positive for Covid implies that it KNOWS that it’s test results are unreliable, giving far too many false positives.

    I would further suggest that if 100k people are tested daily, & the positive figure is over 50K, then more than half the population have it, & the remainder have had it.

    So either the vaccine is unnecessary stuffing of the pockets of drug companies, or the figures are downright lies.

    My deepest condolences to those who have lost loved ones. Even if they would have passed without covid, it doesn’t make it easier on the familiy they leave behind

    • We are in a worrying period now as infections from covid are spiralling away, Scotland tightens rules again and Borris now to announce new measures at 9.pm tonight.

      https://www.bbc.co.uk/news/uk-scotland-55531069

      A further lockdown is bound to hit the economy further and its a possibility interest rates could now be cut to zero at the end of this month. The market sees a 30% cut but I now see more than a 50% possibility.

      I also happen to think inflation isn’t a worry short term, retailers will have to get more competitive and in actual fact ALDI has seen over 10% rise in sales in the four weeks to Christmas.

        • therawbuzzin

          ““A further lockdown…” What was that definition of insanity?”

          Not if you are on a ventilator close to death or are a nurse risking your life to save patients.

          I have said for a long time now easing was the wrong thing to do, the far east got a better handle on the virus by far more draconian measures early on.

          The failure to go into lockdown earlier has cost lives and damaged the economy far more than would have happened if the initial lockdown was far more draconian.

          It was “insanity” not acting earlier its caused significant damage to the economy.

          Furthermore you can now expect a further reduction in UK interest rates to zero at the end of this month imo.

    • There are between 4 and 500,000 tests per day yielding a figure that is currently 50,000 plus. That may seem a lot, although it is not the 50% you thought, but many of those are tested for the very good reason that they are suspected of having Covid. Some of them are random tests which gives the government a good handle on the prevalence in the general population but that does not tend to be a headline figure.

      • Regardless of statistics, i am shocked by the number of people I know or who I hear of, who have caught this virus in the last month. Definitely an increase in the rate of infection. Now I suspect quite a bit of that may have come from bad habits in the run up to Xmas rather than a more infectious strain which may be a significant factor in the spike we are seeing. The simple logic is – if people don’t inter mingle then the bug cannot spread hence I suspect activity is playing a major part.

        • Humans are social animals, not at risk, in general, from this virus.
          The simple logic is this AND ONLY THIS, AND HAS BEEN FROM THE START; protect the vulnerable, everyone else, who will suffer little, or not at all, gets on with it.
          These deliberate attempts to fragment society definitely have sinister undertones.

          • I have some sympathy with the idea of isolating vulnerable people – if indeed they can ever be totally isolated from caters, hospital staff, health visitors, people taking round supplies etc and letting everyone else get on with life – with some precautions.
            I don’t buy into the idea that any of this is deliberate or sinister given the global perspective.

        • Pavalaki,

          Well said and I don’t go along with all this false news on the virus being allowed to take its course.

          The GOV needs to go implement the most draconian measures and the police come down hard on anyone not complying and everything done to speed up vaccine throughout the population.

          • Top epidemiologist Knut Wittkowski says that the massive drop in influenza cases can be attributed to the fact that many are being falsely counted as COVID-19 cases. Wittkowski, former Head of Biostatistics, Epidemiology and Research Design at Rockefeller University, cautioned that, “Influenza has been renamed COVID-19 in large part.” According to CDC figures, the cumulative positive influenza test rate from late September into the week of December 19th was just 0.2%, compared to 8.7% from a year before.
            According to Wittkowski, this is because many flu infections are being incorrectly labeled as coronavirus cases.

            “There may be quite a number of influenza cases included in the ‘presumed COVID-19’ category of people who have COVID-19 symptoms (which Influenza symptoms can be mistaken for), but are not tested for SARS RNA.”

            Those patients may “also may have some SARS RNA sitting in their nose while being infected with Influenza, in which case the influenza would be ‘confirmed’ to be COVID-19,” he added.

      • PeterH

        Whatever, however the hospitals are becoming overwhelmed and it was a mistake to ease restrictions during Christmas day and the GOV now having to announce far more draconian measures.

        We have a problem in a democracy dealing with a serious pandemic its been far better controlled in the far east and lessons need to be learned.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

This site uses Akismet to reduce spam. Learn how your comment data is processed.