Liabridge's Economic Commentary

One Key Reason Banks Will Continue to Merge and Its Implications

In the first quarter of 1984 there were 14,400 commercial banks in the U.S. As of the first quarter this year, the number had dropped to only 5,693. During the course of about 30 years, the number of banks in the U.S. hence declined by 8,707 or 60.5%. During the same period, total assets for all U.S. commercial banks increased from USD 2.0259 trillion to USD 14.4846 trillion, an increase of 615.0%. As a result, total assets for the average bank increased from USD 0.14 billion to 2.54 billion, or…

Combining Austrian Business Cycle Theory and Value Investing: This U.S. Stock Market Risk Indicator is at an All-Time High

Strict value investors focus on company fundamentals and price vs intrinsic value and pay little, or no, attention to macro economic data and developments. Though focusing on fundamentals, and buying at an attractive price, is of the greatest importance, even great value stocks will fall during larger stock market corrections (though perhaps by less). Keeping an eye on where we are in the financial cycle driven by central bank policy and fractional reserve banking is therefore also of great importance in my opinion. As I consider myself a value investor…

Does The World No Longer Care About Prosperity?

In a world creating ever more bureaucrats and central planners, draining the public for resources, in a world where central bankers manipulate the money supply and currencies and effectively control one of the most important prices of all affecting all others, the interest rate, in a world where value created is viewed as a cake that needs to be shared equally, not recognising where and how this cake was created in the first place, how can we expect standards of living to rise?

What Is The Optimum Quantity of Money In An Economy?

The correct answer is “any amount will do” as long as the money is divisible. A short example might help explain this very straight forward fact. Let’s say you and your best friend decide to play Monopoly. As you open the box you discover to your horror that all the money is missing. As it’s impossible to play the game without it, the both of you agree to create money out of pieces of paper in just one denomination, each representing 1 MM (Monopoly Money). How many MMs do you need to…

Euro Area Money Supply and Lending Continue to Plummet, Demand for Cash Surges

The ECB today released the money supply and bank lending figures for March 2014 for the euro area. Though all the money supply measures hit new all-time highs, except for M3, what is really interesting about the figures are that the respective growth rates are falling sharply: The year on year (YoY) growth rate for the M2 money supply fell to the lowest level since October 2011. The YoY growth rate for the M3 has now hovered around the 1% benchmark since October last year. The last time the growth…

Credit? No, declined. Deposits? Yes, please.

Money in the U.S. is created and redeemed through the fractional reserve system controlled by the Fed. Money is created through the Fed purchasing newly issued government debt and through banks buying assets from the non-banking sector (including the government) and through granting new loans to businesses and individuals. Money is redeemed by the Fed selling assets or through more loans being repaid to banks than granted. In the aftermath of the banking crisis culminating with the credit crunch in September 2008, banks quickly stopped expanding their loan and investment…

Price Inflation and The Real Inflation

In all corners of the western world we can regularly hear that inflation is low, or “well-anchored” in the language of central bankers. References to inflation are usually references to price inflation, more often than not as measured by the CPI – the Consumer Price Index. Such indices were initially constructed to provide a measure of the purchasing power of money – if prices goes up, the purchasing power of money goes down and vice versa. It is not only the supply and demand of the various goods and services included (and excluded) in such indices…

U.S. Money, Credit & Treasuries Review (as of 2 April 2014)

According to data released yesterday by the Federal Reserve, the U.S. monetary base closed at USD 3.8850 trillion for the bi-weekly period ending 2 April 2013, leaving the base USD 134 billion, or 3.6%, higher than year end 2013. Compared to the same period last year, the base increased 30.1%. This is a tremendous increase even by Japanese standards. With the Fed tapering now starting to bite combined with a higher denominator than last year, the year on year percentage increase was the lowest since the bi-weekly period ending 21 August…