(9 days ago)
“Towards the end of QE3, the money-creating burden was once again handed to the banks.
“Banks reacted positively and lending growth expanded quickly.
“But in recent weeks, bank lending has actually contracted pulling the money supply growth rate into negative territory.
“Typically, these developments signal not only a looming GDP recession, but also increased probability of an economic crisis and a stock market crash.
“Following years of artificial growth, the U.S. economy now therefore appears to be at a major inflection point…
“The faster the money supply growth rate falls following a period of expansion, the quicker an economic reaction is triggered. Outright contraction in bank lending is therefore a major warning sign that a reaction of some sort (referred to as a “shock” in some circles) might be approaching…
“The chart shows that lending on this basis has now contracted for four consecutive weeks. To put this in context, the last time this happened, ignoring the aftermath of the previous banking crisis, was in the run-up to the Lehman collapse in September 2008. In fact, it is highly unusual that lending ever contracts on a 13-week basis.
“But when it does, it tends to precede or occur during an economic crisis of some sort…”