Argentina October M2 Money Supply Expands 31.2% On Year

From WSJ

BUENOS AIRES (Dow Jones)--Argentina's money supply expanded 31.2% last month in nominal terms from a year ago, according to the country's central bank.

In its monthly monetary report published late Thursday, the Central Bank of Argentina said its benchmark M2 measure of money supply averaged 301.05 billion pesos ($70.5 billion) in October.

Adjusted for inflation, the money supply increased 19.4% from a year ago, according to the bank.

The central bank's target for M2 expansion this year in real terms is 27.9%, following a 28.1% increase in 2010.

M2 expanded 0.9% from September in nominal terms.

Lending to the private sector rose almost 52% nominally on the year to ARS227.6 billion at the end of October, with commercial and consumer loans posting hefty increases.

"Loans associated with retail activity continued to be the main driver of growth," the bank said.

Argentina has been enjoying a consumption boom, thanks to high inflation, an economy that is on track to expand 8% this year, and unemployment that is at multi-year lows.

Argentina's boom is unsustainable since it is driven by monetary expansion.  The economic bust is inevitable.

EU Financial Crisis

Judging by the European money supply, the financial crisis in the EU might be easing.

The EU money supply has been increasing since March of 2011.  If the money supply continues to grow along with the  expansion of bank credit, the financial crisis in the EU should diminish.

Canada GDP Unexpectedly Shrank in Second Quarter

From WSJ

OTTAWA—Canada's economy shrank in the second quarter, the country's first contraction in two years, underscoring the sudden economic headwinds that are buffeting even some of the world's most resilient economies.

A few months ago, Canada was performing better than most of its Group of Seven peers—its strong banking sector and plentiful natural resources bolstering its broader economy and its currency. But Canada is heavily dependent on international trade, and the global slowdown that has buffeted the U.S. and Europe, has hit hard here, too. 

Gross domestic product declined 0.1% from the first quarter, for an annualized contraction of 0.4%, Canada's statistics agency said on Wednesday. Recent economic data—including weak factory sales and trade figures released earlier in August—had some economists forecasting a modest retraction. But others had held out hope for slow or at least flat growth—similar to second-quarter performances posted in the U.S. and the euro zone. 

Among the G-7, only Japan, and now Canada, have posted negative growth for the quarter. That is after several quarters where Canada largely outperformed its developed peers.

If you look at the money supply, it's no surprise that the Canadian GDP is declining.  The Canadian M1 has been declining since beginning of 2010.

New Indicator to Forecast the Stock Market Declines?

I've created an indicator called the "PK Negative Indicator" and it's a very simple construction.  Don't ask me how I came up with that name.  I'm horrible at naming things.

I could be wrong, but it seems that there's a divergence between the PK Negative Indicator and the stock market prior to the market's decline.  It will be interesting to see if this relationship continues to hold.

Recent decline in the stock market

Stock market crash in 2008

Dot Com Bust

  

Balancing Act

Reuters

(Reuters) - South Korea's broadest L-money supply measure in July grew 9.0 percent from a year earlier, accelerating from an 8.1 percent rise in June on improved money flows through the financial industry, the central bank said in a statement.

The CPI in Korea is around 4.2% as of April 2011.  It would be unwise to continue inflating the money supply given the current CPI rates.

Here's recent economic news regarding the inflation rate in Korea from the San Francisco Chronicle dated 9/8/11.

South Korea and Indonesia held off from raising borrowing costs today amid mounting risks that the global recovery will stall even as inflation may accelerate. 

The Bank of Korea held the benchmark seven-day repurchase rate at 3.25 percent, while Indonesia's central bank left its benchmark interest rate unchanged at 6.75 percent, they said in statements from Seoul and Jakarta. The central banks of Malaysia and the Philippines will probably also keep their benchmark rates unchanged when they meet later today, according to two Bloomberg News surveys of economists.

From the same article...

Inflation has accelerated even after policy makers boosted borrowing costs three times this year and the government imposed price controls. Consumer prices in South Korea rose 5.3 percent last month from a year earlier, the biggest gain in three years. Governor Kim said inflation may be higher than expected and the central bank's 4 percent target ceiling "may not be achievable" this year. 

President Lee Myung Bak held an emergency cabinet meeting on July 20 to discuss ways to contain inflation as the rising cost of living hurts his popularity. Lee's approval rating stood at 34.4% last week, compared with 76% in his first week in office in Feb. 2008, according to Realmeter, a polling company in Seoul.

In summary, the Korean central bank have been increasing the money supply as price inflation continues to threaten the economy while keeping the interest rates steady due to the uncertainties rising from the financial crisis in the EU.

If they lower the interest rates and continue inflating the money supply fearing that the European financial crisis will worsen, price inflation will accelerate further.  If interest rates increase and money supply decreases to contain price inflation,  the economy will slow down or go into recession.  They're screwed either way.  I think the United States will face similar problems in the near future.

New York Fed May Demand Liquidity Reports From European Banks

Oct. 3 (Bloomberg) -- The Federal Reserve Bank of New York may ask foreign lenders for more detailed daily reports on liquidity as the U.S. steps up monitoring of risks from Europe’s sovereign debt crisis, according to two people with knowledge of the matter.

Regulators held informal talks with some of the largest European lenders about producing a “fourth-generation daily liquidity” or 4G report, according to the people, who asked for anonymity because communications with central bankers are confidential. The reports may cover potential liabilities such as foreign-exchange swaps and credit-default swaps, said one person. The U.S. has already increased the number of examiners embedded in these banks, the person said.

Full Story

Debt Defaults Have Greek History

From Forbes

Ancient Default 

The first recorded default in Greek history occurred in the fourth century B.C., when 13 Greek city states borrowed funds from the Temple of Delos. Most of the borrowers never made good on the loans and the temple took an 80% loss on its principal.

Five Times 

Greece has defaulted on its external sovereign debt obligations at least five previous times in the modern era (1826, 1843, 1860, 1894 and 1932). The first episode occurred in the early days of that country’s war of independence, and the last default was during the Great Depression in the early 1930s. The combined length of period under which Greece was in default during the modern era totaled 90 years, or approximately 50% of the total period that the country has been independent. (For related reading, see Recession and Depression: They Aren’t So Bad.)
Although many might consider this level of default to be excessive, Greece is nowhere even close to the top of the list. Venezuela and Ecuador, with 10 defaults each, share the (dis)honor of being the greatest serial defaulters of the modern era.