M4 Growth in UK (2009)

M4 is known as the ‘broad money supply’.

It is a measure of notes and coins in circulation (M0) + bank accounts. This includes private-sector retail bank and building society deposits + Private-sector wholesale bank and building society deposits and Certificate of Deposit. The Bank of England produce figures on M4 growth. [link]

Money supply growth provides a rough guide to the state of the economy – economic activity and inflationary pressure. However, money supply figures can often be unreliable and affected by many issues.

Nevertheless the economic recession has caused a fall in the growth of the money supply.

M4 Statistics excluding the effects of securitisation

M4

M4

This graph shows that the M4 money supply growth has fallen sharply at the end of 2008 – 2009. This explains why the Bank of England have been trying to boost money supply growth with their policy of reverse securitisation (buying assets to increase cash liquidity)

Money Supply Growth M4 with the effects of Bank of England Securitisation

M4

M4

This reverse securitisation was initially funded by borrowing. But now quantitative easing involves buying assets by creating money. (source diagrams: Bank of England)

m4-sector

This diagram shows that money supply is falling amongst PNFCs (private non financial corporations) and households. OFCs are other financial companies

M4 and Velocity of Circulation

uk-money-supply-growth-dec08

The above statistics only tell part of the story. The effective money supply depends on the velocity of circulation. The recession has reduced the velocity of circulation and so we are actually facing monetary deflation. If we adjust money supply for a falling velocity of circulation [Source: Diagram Market Oracle [link]

This monetary deflation is why the Bank of England is using quantitative easing

2 Responses to M4 Growth in UK (2009)

  1. a September 30, 2009 at 4:24 pm #

    what is M4 again??

  2. anon June 10, 2010 at 7:08 pm #

    It is complex and confusing by design. Remember this…

    Money = Debt.

    Too much debt?, create more money, inflation kicks in, prices go up. If the banks go bust?, governments take the money from the people, through tax, then give it back to the banks that loaned the people the money in the first place.

    hahahaha, watch Money is Debt and WAKE UP or you’ll forever think you owe your owners money for owing them money that they own, they created it out of thin air in the first place…

    Baaa, baaa

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