Divergence of credit and money stock in the Eurozone

by on May 2, 2012 at 2:49 am in Economics | Permalink

Uh-oh:

Eurozone M3 vs loans to the private sector (source: GS)

From SoberLook, here is more.  One possible lesson is that the real enemy of monetary policy is collapsing credit markets, not zero short-term rates per se.

Andrew Edwards May 2, 2012 at 8:20 am

From the looks of things they also diverged in 2002 and that divergence persisted for a number of years without any major problems. What am I not getting?

Rahul May 2, 2012 at 10:20 am

And again in 2005. We probably see that artifact every 5 years if we go further back in time.

Lou May 2, 2012 at 1:03 pm

Credit is the channel through which monetary policy affects the economy. If monetary easing no longer generates credit, it is essentially at the boundary of its effectiveness. This would be a major problem in Europe because their problems are nowhere near solved and there is no capacity for fiscal stimulus.

Floccina May 3, 2012 at 5:45 pm

One possible lesson is that the real enemy of monetary policy is collapsing credit markets, not zero short-term rates per se.

Do credit markets collapse due to feedback in the monetary system. If so why do we have such a system?

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