Saturday 30 January 2010

UK GDP and forcing the money supply: flogging a dead horse?

A few days ago, I charted the relationship between GDP and the money supply as measured by M4 (bank lending to the private sector). We now hear that estimated GDP for 2009 was negative 4.8% (the worst since 1921) and the Bank of England's website shows bank lending grew in the first 3 quarters of 2009 by 5.1% annualised.

The BoE's figures for M4 only go back to the spring of 1963, and in all the time since then GDP has never been negative, yet with all this stimulus (and the enormous central bank quantitative easing that forced it) it still fell, so who knows what might have happened without it.

It seems to me that the doctor has been disguising the symptoms, and the illness still has a long way to run.

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