I don’t find aggregate measures of the money supply particularly enlightening, and usually when I focus on the money and credit aggregates at all it is on the credit side of things. In a floating exchange rate system, credit growth tends to result in money creation, rather than vice versa. Whether it results just in money creation, or in some mix of money and offshore financing, depends largely what people do as a result of whatever gave rise to the credit creation.
Cross-country monetary aggregate comparisons are also fraught. Different countries measure the money supply in different ways, and the importance of the types of institutions whose liabilities are captured in the money supply measures differ from one country to another (banks are much less important in the US than in most other advanced countries).
All that said, I put a chart of money supply growth since 2007 in my post yesterday. I did so simply to respond to a not-overly-well-considered claim by Kirk Hope that New Zealand had not relied on monetary policy, or money supply growth in particular, to the same extent as the other large industrial countries he cited.
Then I noticed that a few people had looked at the chart and concluded that New Zealand had had wildly rapid growth in its broad money supply, one observing that
One reason house-price inflation took off: QE.NZ. We may not have had QE officially, but compared to “New Zealand has had the second fastest rate of money supply growth” of all major developed countries – around half of which was borrowed into existence to buy houses.
So I thought I should do a slightly better chart. After all, countries with faster population growth should probably expect faster money supply growth (they need more), and it makes sense to look at these things in real terms – after all, Japan has had deflation over that period and Turkey has had rather high inflation.
For what it is worth the OECD has broad money supply data for 19 countries (including the euro area as a whole) and I added in the German data I used in the post yesterday. For those countries, I got population data from the IMF and inflation data from the OECD, and calculated real money supply growth per capita for those countries between 2007 (just before the recession) and 2015.
And here is the resulting chart
I’m not sure I’d want to take much from it. On this measure, and despite having had larger cuts in interest rates than all (?) of these countries since 2007, we’ve had rather moderate real per capita money supply growth (although still ahead of the UK, Japan and the euro-area of the dreaded QE). It has been faster than underlying productivity growth to be sure, but not dramatically so.
Bank balance sheets just haven’t been growing very rapidly (in real per capita terms) over that period. And much of the credit (and money supply) growth, I would argue, is the endogenous response to higher house prices, rather than some independent factor pushing house prices up. The interaction of planning restrictions and population pressure have pushed real house (+land)prices in our biggest city up sharply, and unsurprisingly people need to take out larger loans than previously to purchase houses. When they take out such loans, the stock of credit rises, and so does the stock of deposits (the money supply). If, in aggregate, people treat higher house prices as new wealth and consume more then over time money supply growth will tend to lag behind credit (their spending will flow into a current account deficit, funded typically by bank foreign borrowing). If, on the other hand, people in aggregate treat higher house prices as an additional cost, undermining their sense of well-being, the effect could be the other way around. But just because credit/money rises we shouldn’t necessarily think of banks as the driving force in the process – more an accommodating one, mostly responding to other structural (and perhaps speculative) forces.