Euro Area Money Supply Growth Up-Credit Down
Interestingly though, the ultra-broad M3 aggregate has however seen its growth rate drop from 9.3% to 3%, while lending to the private sector has dropped from 11.1% to 1.8%. Total lending has dropped somewhat less, from 9.1% to 3.3% as government lending has increased.
Because M3 includes almost all forms of financing of credit, it will more closely resemble credit growth than M1. Contrary to what Mish and his followers argue though, money supply (M1)is what matters, not credit (essentially M3), which is why we saw a big drop in economic activity and inflation in the euro area following July 2008 when money supply growth was low and credit growth was high and that is also why we are now seeing a economic recovery in the euro area and will soon see its inflation rate increase dramatically now that money supply growth is high and credit growth low.