Ex-RB Short Term Traders

[Naztrader]

The U.S. Money Slowdown: Should You Be Worried?

2004-01-22 08:30:00

U.S. monetary growth has plunged in recent months. The reasons are not fully understood, but there is no corroborating evidence of a liquidity squeeze.

The eye-catching slump in U.S. money growth would be very bearish if it was signaling building problems in financial intermediation. However, there is no support for such an interpretation. Money weakness in late 2003 reflected the unwinding of an earlier surge related to mortgage refinancing and tax cuts. More recently, it may have been due to a shift out of deposits into equities. The money slowdown in the early 1990s was associated with severe banking problems as shown by the high level of our Financial Stress Index. The Index is currently very low. Bottom line: weak money is troubling, but not yet alarming. Stay tuned.

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