Disleveraging becomes deleveraging

The RBA has released June Credit Aggregates and it’s getting ugly. According to the bank:

Total credit provided to the private sector by financial intermediaries decreased by 0.1 per cent over June 2011, after rising by 0.3 per cent over May. Over the year to June, total credit rose by 2.7 per cent.

Housing credit increased by 0.3 per cent over June, following an increase of 0.5 per cent over May. Over the year to June, housing credit rose by 6.0 per cent.

Other personal credit declined by 0.4 per cent over June, after decreasing by 0.1 per cent over May. Over the year to June, other personal credit increased by 0.3 per cent.

Business credit declined by 0.7 per cent over June, after being flat in May. Over the year to June, business credit declined by 2.4 per cent.

Over the month of June, M3 declined by 0.5 per cent and broad money decreased by 0.6 per cent. Over the year to June, broad money grew by 6.8 per cent.

All growth rates for the financial aggregates are seasonally adjusted, and adjusted for the effects of breaks in the series as recorded in the footnotes to tables. Figures showing the levels of financial aggregates are not adjusted for series breaks. Historical levels and growth rates for the financial aggregates have been revised owing to the resubmission of data by some financial intermediaries, the re-estimation of seasonal factors and the incorporation of securitisation data.

So, private sector credit shrank  in June. For me there are two really important charts that, coming on top of the RP Data – Rismark House Price data this morning, tells us the economy is into a negative feedback loop and a rate hike next week just might set the credit preconditions for a spiral.

 

Check out this chart. It is the month on month change in Housing Credit. This Month’s growth rate of 0.3% is the lowest since 1984!

The next chart below show the annual rate of growth in the stock of housing debt. It’s yet to go negative, so as Houses and Holes always says we are “dis-leveraging” but I’m guess we’ll see real genuine de-leveraging in the coming year.

Here is the chart of what the 4 RBA data series look like together year on year. All are trending down and the recent increased demand for business lending looks to have peaked – and why wouldn’t it? How’d want to leverage up in this economy.

 

As Sir Humphrey Appleby used to say – it will be a courageous decision for the RBA to raise rates next week after this data . Lets hope that the TD-MI inflation data Monday doesn’t give them renewed vigour to pull the trigger.

Comments

  1. “Over the month of June, M3 declined by 0.5 per cent and broad money decreased by 0.6 per cent.”

    I probably don’t know what I’m talking about here, but won’t this put upward pressure on the AUD and downward pressure on inflation? Is this common for the money supply to decline every now and again?

    Someone berate me if I’m totally off the mark here.

  2. Does debt deleveraging actually increase the cost of credit when your currency is actually backed by the debt issued?

    Money actually becomes scarcer when less debt is issued, the value of the currency rises, and the cost of borrowing also increases or am I off the mark.

    • Well I figured less money supply going around means each dollar gains value? Again, I’m a noob here, but I would genuinely like to learn how these things work together, and where else than macrobusiness to learn these things?

      • …would need to actually consider the value of what the money might actually be used to purchase: is that thing / those things inflating or deflating?

        Just a thought.

      • Hi Macster
        From what I know, the graph which DE has posted shows growth in the money supply in percentages. Money supply can increase when for instance people take out loans for consumption and contracts when people start paying off loans, there by serving as a proxy what the level of consumption is and the level of economic activity.

        Less money supply does not mean more inflation because of less money to satisfy demand. The decreasing money supply is an after effect of decreasing demand. Peter W wrote an excellent blog on MB on how this correlates to falling house prices.

        • Hi Macster
          From what I know, the graph which DE has posted shows growth in the money supply in percentages. Money supply can increase when for instance people take out loans for consumption and contracts when people start paying off loans, there by serving as a proxy what the level of consumption is and the level of economic activity.Less money supply does not mean more inflation because of less money to satisfy demand. The decreasing money supply is an after effect of decreasing demand. Peter W wrote an excellent blog on MB on how this correlates to falling house prices.

          aka pb123

  3. DS

    Firstly, thanks for being the resident data expert.

    How do these aggregate figures reconcile with the RBA data statistics for each sector? When I look at the increase in residential mortgages on bank’s balance sheets for June I see an increase of 0.9% for the month.

    I haven’t checked all the other providers of mortgages but banks have 90% of the market anyway, so do you know the explanation of how this relates to housing credit increasing in the aggregate figures by only .3% in June?

    • That is a hard one to square – the Building Society, Credit Union and other sector is a month behind.

      We’ll see if we can figure it out.

    • First thing to check would be the seasonal adjustment. I don’t think the RBA provides the raw numbers, but if they do then that might give you a hint.

  4. MoM June 2011 chg%
    Housing 0.321%
    Owner Occupier 0.358%
    Investors 0.234%

    That really is anaemic. If Refinancing continues to be a decent chunk of the Owner Occupier market then the amount of new loan dollars actually buying property could be getting close to contracting.

    RBA Board – Nothing to see here, move along to your next hawkish cash rate meeting please.

  5. Sandgroper Sceptic

    At last the great Ponzi is about to unwind! A 25 bp hike is pretty small beer in the context of those numbers.

    Deleveraging the new buzzword.

  6. OK re Macster’s point…someone correct us if necessary. The credit is declining because there is just simply less demand for the dollars….value down.
    I guess it therefore depends on why the credit is diminishing. Is it because of less demand or because the Central Bank is being restrictive?

  7. Ok, thanks everybody for the very informative posts. Macrobiz really is a great site!

    From what I gather then, the money supply shrank due to less credit issuance due to less demand for credit (which explains housing and retail bombing?)? So demand is going down in trend with the money supply, hence it won’t mean money will gain value despite becoming scarcer because the demand has also shrunk?

  8. RBA can’t hike on these numbers, particularly money aggregates such as broad money, which have dropped like a stone.

    ABS house price stats come out on 2/8 (I believe) and unlike the RPData stats, they should show a fall for Sydney over the year. That will be a big nail in the coffin, on the back of these figures today.

  9. Japan is rooted because everyone decided to repay their loans at the same time. Low interest rates means that the pain is prolonged. Hike those rates to the moon!

  10. Living in sydney, prices are still amazingly priced. Two things will occur:

    1. Nominal price drop
    2. Inflation erosion leading to the RBA sitting for 6 mths, then forced to raise rates so much that it would cause a non mining recession.

    A win win situation really.