Seeking Alpha

Atle Willems, CFA's  Instablog

Atle Willems, CFA
Send Message
Atle Willems, CFA, is an equity investor with a long-term view investing in undervalued listed shares with solid operational track records and sensible balance sheets. He holds a master's degree in finance from Nottingham University Business School, a bachelor's degree in business... More
My company:
Liabridge
My blog:
EcPoFi - Economics, Politics, Finance
  • Euro Area Monetary Base & Money Supply (As Of 30.06.2012) 2 comments
    Aug 16, 2012 11:02 AM

    The European Central Bank (ECB) reported its monetary statistics for the euro area for the period ending June 2012 on 26 July.

    Base money continued to increase rapidly on a Year-on-Year (YoY) while the monetary aggregates (M1 and M2) only increased modestly on last year at about half the historical average rate. The M1 money multiplier was again substantially lower than average and continued to decline rapidly on last year. If the Quantity Theory of Money holds, there is a real and significant risk in Europe (as in the U.S., see here) that inflation will kick in (with a bang) when the M1 money multiplier again starts to increase as the money supply then will increase accordingly. This inflation, all else remaining the same, will also erode the purchasing power of the euro relative to currencies in other countries with less inflation.


    Base Money (M0). YoY base money increased by 56.0% from €1,122,369 million in Jun-2011 to €,750,966 million in Jun-2012. On a monthly basis base money decreased by 1.3%.

    (click to enlarge)

    (click to enlarge)

    M1 Monetary Aggregate. YoY M1 increased by 3.8% for the month from €4,715,014 million to €4,892,987 as of Jun-2012. Compared to last month, M1 increased by 0.4%.

    (click to enlarge)

    (click to enlarge)

    M1 Money Multiplier (M1/Base Money). The multiplier for the month was 2.79 which was 33.5% lower than Jun-2011. On a monthly basis the multiplier increased by 1.8%.

    (click to enlarge)

    (click to enlarge)

    M2 Monetary Aggregate. M2 increased by 3.3% YoY to €8,777,223 million. On a monthly basis it increased by 0.2%.

    (click to enlarge)

    (click to enlarge)

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Back To Atle Willems, CFA's Instablog HomePage »

Instablogs are blogs which are instantly set up and networked within the Seeking Alpha community. Instablog posts are not selected, edited or screened by Seeking Alpha editors, in contrast to contributors' articles.

Comments (2)
Track new comments
  • Martinelli
    , contributor
    Comment (1) | Send Message
     
    When the money multiplier kicks in, any Central Bank in the world could just increase the coefficient of required reserves and reduce the multiplier significantly.
    23 Aug 2012, 02:11 PM Reply Like
  • Atle Willems, CFA
    , contributor
    Comments (21) | Send Message
     
    Author’s reply » Yes, they probably could. But the required reserve ratio is not something they like to change often as it would cause uncertainty. Also, there would be a limit to how much it could be increased and if they could raise it enough to reduce the multiplier enough and many other issues. That would be for another article I think.
    24 Aug 2012, 04:49 AM Reply Like
Full index of posts »
Latest Followers

StockTalks

More »

Latest Comments


Instablogs are Seeking Alpha's free blogging platform customized for finance, with instant set up and exposure to millions of readers interested in the financial markets. Publish your own instablog in minutes.