By David Hargreaves
The annual growth in outstanding mortgage money has slowed for the first time since last November, according to new Reserve Bank figures.
In recent months the annual growth rate in mortgages has shown, arguably, surprising resilience, blipping up above the 6% level and beyond.
However, in June, the growth rate dipped to 6.2% (from 6.3% in May) on the back of moderate monthly growth in outstanding mortgages of $1.446 billion. That figure includes both bank and non-bank lending.
The moderation in these figures appears very much in line with the tepid nature of much of the housing market at the moment.
Growth in personal borrowing, which was quite considerable a couple of years ago, (hitting an annual growth rate of 8.6% in January 2018), is continuing to slow markedly.
In June the annual growth in personal borrowing (both bank and non-bank) dropped to 1.2% from 1.7% the previous month.
The 1.2% growth rate is the slowest in this sector since August 2013, with just a net $17 million added in borrowing in June.
Elsewhere, borrowing by the business sector continued to be volatile.
In June businesses took on a net increase in debt of over $1 billion, pushing the annual growth in business debt to 5.3% up from 4.7%, after the growth rate had slumped from 6.2% in April.
In the much-watched agricultural sector, debt levels rose around $150 million in the month, to over $63.6 billion. However, the annual rate in growth of this debt slowed to 3.1% from 4% the previous month.
The 3.1% annual growth rate for agriculture debt is the lowest since late last year.
33 Comments
Such high credit growth is clearly in excess of nominal GDP growth and hence it is clear that it must be creating unsustainable asset bubbles that result in banking crises – as the Quantity Theory of Credit has postulated since its inception in 1992; Werner, 1992, 1997; 2012, 2013). Link-section III.
I read the article and while it was very interesting, there is something that confuses me. In Figure 1 in the Article, the professor claims to demonstrate how banks create money. The figure shows a new loan of $1000 to a customer. The bank A now owns an asset (a receivable loan) of $1000 and create a fictitious customer deposit of $1000 to balance the entry. Therefore, the bank has added $1000 to the credit pool. So far so good. However, when the customer withdrawn the loan (e.g. to buy a car) the bank will need to pay the credit balance to another bank (to be deposited in the seller's bank account). The Bank A needs to either transfer cash to bank B or to purchase credit from Bank B of $1000. In both cases, the fictitious balance of $1000 is replaced with something real (e.g. a reduction in cash or increase in actual liabilities). The interbank loan of $1000 is on demand, so it cannot be included in the capital adequacy ratio of the Bank A! so it will need actual deposits from others to maintain his capital adequacy ratio. Am I wrong?
It's somewhat unintuitive - whilst there is some transfer of reserves, in fact for the most part it isn't ever anything "real", simply accounting. There's a great article from the Bank of England that explains it in detail with lots of practical examples:
https://www.bankofengland.co.uk/-/media/boe/files/quarterly-bulletin/20…
If you simplify the example and imagine there is just a single bank that every party banks with. Say someone goes to buy a car with that money it then gets deposited into another persons account (and in this scenario at the same bank). Thus, money HAS been created.
The only time the money is removed from the banking system is if its withdrawn in cash (which is why there is no where near enough cash in any economy for everyone to go and withdraw their money on a given day - as so much of the "money" has been created via debt).
In reality when the money is created it may move to another bank, but in aggregate it is still within the banking system. And for every loan created by Bank A, with money being paid Bank B, you will more than likely see similar flows in reverse with Bank B creating loans and money flowing back to Bank A.
And the Australians have just started a war on cash.
Shite, they didn't educate that in the education factories.
A sovereign nation has the right to issue its own legal currency and hands over the supply of "money" to private institutions, and the banking system regulator attempts to influence inflation at the bottom of the cliff rather than understanding money supply at the top before it falls over the edge. I really don't see a problem with that.
It's not a good thing that in a slowing economy, businesses appear to be borrowing to pay wages. "In June businesses took on a net increase in debt of over $1 billion, pushing the annual growth in business debt to 5.3% up from 4.7%, after the growth rate had slumped from 6.2% in April"
Job losses are iminent. Sagging rents will come soon afterwards. Yes, rents do fall. It was a super quick recover post 2008 so rents did not fall markedly but vacancies rates soared as the graph in the attached link clearly shows "2009 was just after the global slump and had exceptionally high vacancy levels." http://www.werent.co.nz/blog/
With this slump more likely to be a prolonged one, rents will fall in tandem with nationwide house prices.
I can't see justification for a cut in the OCR. Not in the credit aggregates anyway. They still look okay, see. Maybe if one acknowledges there's 15 or so billion less FDI buying existing houses...
The storms coming and more and more people are beginning to see it. I'm not getting anything positive back from those people who are still working as to the state of business confidence, which is now translating into actual drops in income. The brakes are coming on hard, you better have your seatbelt fastened.
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