Money Supply, House Prices, Stocks Exchange Assets, Prices
02.11.06
at 23:52
at 23:52
tagged with:
A couple of days ago I picked up on a report from the Times and Bloomberg about growth in M4 money supply. I've been trying to do a little research on relative growth of different types of assets and the money supply and retail prices.
I don't know if this chart makes any sense, but I found figures from various sources for M0 and M4 (from the Bank of England statistics service), for house prices (from the Department of Communities and Local Government), for Retail Prices (from the National Statistics Office) and for the FTSE Actuaries All Share Index (from Finfacts.com an Irish financial statistics organisation) most of which can go back to the late sixties.
I rebased all of them to start from 100 in all but one case in Q2 1968 (M0 I could only find from Q2 1969) and charted the results. No doubt something is glaringly wrong and people will soon yell at me what it is. I need to add GDP growth and one or two other things as well. But for now I thought I'd let people see what I had come up with so far:
Trackback URL for this post:
http://www.jockcoats.org.uk/trackback/76
Comments
Hmmm - not sure really. Are you suggesting that it's therefore okay to create money in order to satisfy the demands of a quasi-monopolistic market in land?
But not for a competitive market in, say, railway building resources?
The latter would also deflate land values of course.
Housing is pale blue. FTSE AAS is yellow. Housing prices are tracking M4 much more closely.
I suspect that the growth of M4 coincides (well, it doesn't coincide, it was deliberate!) with the extension of mortgages to the banking sector where it was mostly building societies only before that. Building societies could only lend what they had in deposit or, occasionally, securitize the debt. Banks could create the new money from nothing (the moreso with, as you point out, the change from fractional reserve banking).
If we were just going to creat emoney because there was a shortage of housing, shouldn't we create it in such a way that it gets spent reducing that shortage? It is, after all, created in our name" if it's Sterling."
Jock, if you ask me, shortage of housing is fuelling house price growth. That is fuelling demand for mortgages and therefore M4 growth.
Yes, restricting credit could put something of a lid on it. But the same amount of unmet demand would still be there; just that high income low asset people would be less able to compete with high asset people.
Not sure what you are trying to show here, but this is what I see:
1. House prices are flat while shares a growing strongly, presumably because houses and shares compete for investment.
2. There seems to be a step change in the rate of growth of M4, which may be due to changes in the reserve requirements in the 80s I think it was.
Of course! About two thirds of M4 Lending is mortgage lending. Mortgages are what has thus far been responsible for the creation of most money in the system.
What puzzles me, and where I think I must have done something wrong on that chart is that with other assets much more closely tracking RPI and/or M0 and long term growth which I haven't added in yet as I haven't found a satisfactory time series sequence for it, what is *all* that M4 being used for except fuelling a speculative bubble in a non-productive asset type - land - whose value actually means very little to those who have it, but the difference between economic participation and non-participation for those who don't.
It looks utterly barmy.
comment
On 03.11.06 at 09:59 Anonymous (not verified) said:
So are you saying the rampant growth in house prices is directly linked to a credit bubble, as measured by M4?
Articles with similar tags
-
Britain's Sharia Suburbs
(29-Nov-06)
-
Political memories...
(23-Jun-06)
-
Gubernatorial elections
(06-Nov-06)
-
The Road To Guantanamo
(09-Mar-06)
-
The other Zidane
(13-Jul-06)
-
Out with the old; in with Chris Huhne
(30-Jan-06)
-
Spell it out for us please, Caroline.
(29-Oct-06)
-
CPRE, Oxford's "Core Strategy" and popular futurology
(02-Jul-06)
-
Adam Smith Institute against Planning Gain Supplement
(22-Feb-06)
-
My Haltemprice and Howden connection
(16-Jun-08)
Add comment
![this](http://graphics8.nytimes.com/images/2006/08/26/weekinreview/27leon_graph2.large.gif"){kind=link}
comment
Every market is about where supply and demand meet in a price".
So if land is in short supply buyers will drive the price up - if they can afford it.
Banks see to it - by lending higher and higher multiples of buyers incomes - that prices will continue upwards. The fact is that Money consists of credit created by Banks and is backed for the most part by fresh air.
Bank credit creation based upon the practice of "fractional reserve banking" is the source of asset price inflation. Government expenditure in excess of taxation is another cause of inflation.
The solution IMHO lies in "asset-based" investement in property, the outcome of which is a stream of property rentals which has "Value in exchange" and could therefore be characterised as "Debt-free" money."