European Credit Crunch Hits Broad Economy As M3, Private Loans Collapse

Tyler Durden's picture

The primarily sovereign credit crunch in Europe, which has resulted in part due to the ECB's disastrous, and since reversed decision just like in 2008, to hike rates early in the year, only to go ahead and not only cut but expand its balance sheet by a record EUR 800 billion in the past six months, has finally started trickling down to the corporate, and more importantly financial levels, where as was just reported today, the broadest monetary aggregate, the M3, rose by a only 2.0% in November, dropping by a whopping 60 bps from October (keep in mind this is a huge amount on a number that is in the tens of trillions), which happened to be the biggest annualized contraction change since 2009. What is worse, and what confirms that the daily "near default" state Europe finds itself in every single day has sent shockwaves of uncertainty around the continent, is that the loans to private businesses grew at just a 1.7% rate in November, a plunge from October's 2.7% and missing expectations of 2.6% by a wide margin. Said otherwise, corporate credit (far more important than its sovereign equivalent) is being turned off. And as has been widely discussed without credit flowing, there is not only no growth, but the threat of imminent economic depression. Lastly, that this has happened even as the ECB's balance sheet has risen from EUR 1.9 trillion to $2.7 trillion in 6 months is truly humiliating from Trichet as none of the money he injected into the banks has made it to the broader public, and instead all has been used to prop up Europe's failing banks, something we know all too well here in the US.

A chart showing European M3, and the all too obvious downward inflection point:

And here is Reuters on the issue of why Europe is likely to not only lower rates to under 1.00% but also print, without sterilizing, thereby really dragging out the ghost of Weimar future out of the wheelbarrow boneyard.

Loans to private sector firms in the euro zone fell in November while growth in lending to households slowed, European Central Bank data showed on Thursday, adding to the case for an interest rate cut. The drop in funding to companies increased fears that the region faces a looming credit crunch, an issue of growing concern for the ECB as the worsening sovereign crisis makes firms and households increasingly wary about taking on debt, weighing on the economic outlook.

In an attempt to kick-start loan activity, the 17-country bloc's central bank conducted last week its first-ever three-year funding operation, which saw banks take up almost half a trillion euros. 


In November, loans to the private sector grew at a rate of 1.7 percent year on year, Thursday's data showed, coming in well below analysts' expectations of 2.6 percent and the 2.7 percent growth seen in October.


"They are a very soft set of numbers, Societe Generale economist James Nixon said. "If banks were to start to seriously shrink their balance sheets, that would be quite a significant negative for economic activity. The good news is we don't see that - yet."


The flow of loans to firms dropped by 7 billion euros after growing by a similar amount in October. The flow of mortgage loans rose by 8 billion euros after an 18 billion drop in October. The annual growth rate of mortgage loans remained at 3.0 percent.


Euro zone M3 money supply -- a more general measure of cash in the economy -- grew at an annual 2.0 percent in November, down from 2.6 in October and below expectations of 2.5 percent. Decreasing to 2.5 percent, the three-month moving average of M3 growth remains well below the ECB's reference rate of 4.5 percent, above which the bank sees dangers to medium-term price stability. Economists said the figures made it more likely the ECB would look to offer the struggling economy more support by cutting interest rates further from their current record low of 1.0 percent.


"The sharp slowdown in euro zone money supply growth in November reinforces belief that underlying euro zone inflationary pressures are easing and that the ECB has ample scope to cut interest rates again in the early months of 2012," IHS Global Insight economist Howard Archer said in a note to investors.

Of course, for anyone who thinks that Bernanke will let the ECB print alone, and send the EUR to parity with the USD, we have a CDO cubed collateralized by the Maginot line to sell them.

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
FMR Bankster's picture

All these numbers will go negative as european banks scramble to delever. ECB's three year loans give them time to get their balance sheets in order and they will be forced to do it. Perfectly rational on a bank by bank basis but ugly for the european economy.

MillionDollarBonus_'s picture

I WARNED about this REPEATEDLY, but was ignored and mocked by the zerohedge readership. We are facing the biggest collapse in aggregate demand in history and its time for central banks and governments to GET SERIOUS. We need BOLD monetary and fiscal stimulus programs to get people spending again or we risk a total cedit collapse and decimation of peoples' equity porfolios. Do you people realise how much exposure US banks have to Europe? Do you realise how leveraged their balance sheets are!? The world is crying out for LEADERSHIP and all we are seeing is indecision and impotence.

donsluck's picture

We have had bold stimulus, albeit to the wrong people, and it has not stopped the collapse. It was baked in the cake a decade ago and it's too late. The central control of interest rates is a dismal failure. The authorities have only two choices, a deflationary depression or an inflationary depression. I vote for deflationary, at least my savings will be worth something. But what I want is irrelevant, we will have the latter, triggered by what is happening now.

Buy PMs now (or soon) and be patient.

Dr. Richard Head's picture

I agree with you there.  The one thing that the powers that be are fully aware of is that inifinite growth is the only thing that will keep the debt based money system moving.  Bold moves by the central banks or not, the outcome is guaranfuckingteed, as infinite and exponential growth are completely impossible.  Death of currency by inflation or death of currency by deflation - the death comes either way. 

kridkrid's picture

It really is that simple.  So why do so few people grasp this?  Over the holidays my best friend from HS stopped by my parents house with his 16 YO step son.  There are about 8 of us engaged in this conversation (what is money, what is debt based money, what does it mean, etc.).  About 5 minutes into the conversation the high school junior says, "so money is debt with interest... it must grow exponentially".  I wanted to cry.  Non of the adults got it.

jeff montanye's picture

this discussion is very important and widely ignored.  not only that but much of the investment world is based on growth at an accelerating pace.  we are a hungry, overpopulated finite world running out of clean air and water.  rock and a hard place.

MillionDollarBonus_'s picture

"The central control of interest rates is a dismal failure"

This is simply false. Our Federal Reserve has managed to keep interests rates at record lows despite this economic turmoil, which is a remarkable achievement.

donsluck's picture

In that case, let's control all prices. Then all prices can remain low and we can all live like kings!

MillionDollarBonus_'s picture

The world is not black and white. You have to accept the value of price controls or you are simply an extremist/purist. There is a time and a place for price controls, and a time and a place for liberty. Purist libertarians need to understand that THERE ARE NO UNIVERSAL PRINCIPLES.

pods's picture

Funny but that is exactly what some jack boot is going to be saying to you with his boot on your throat.


jeff montanye's picture

i have read the term jack boot for years and never known its real meaning.  thanks to our information revolution i, in seconds without moving my wide ass, found out it refers to boots that are "jacked" or reinforced with chain mail to parry sword blows.  my new fave has wings like a late fifties/early sixties u.s. car's tailfins to protect the knees.  used by cavalrymen.  

the term is later used for the hobnailed, iron heeled german infantry boot where we get into the door kicking down/neck stomping mentioned above.

donsluck's picture

I am not a purist. I am pragmatic. You are only supporting price controls for one item. Please tell me what other items should have price controls. The "time for price controls" (I assume we are still discussing interest rates) apparently has been almost 100 years now.

You know as well as I that price controls of anything reduce production. The reduction of production of capital leads to depression and destroys banks (obviously).

jwthomps's picture


The fact that we were manipulated rather than educated is a UNIVERSAL PRINCIPAL.

The fact that ill founded policy will eventually fail and that many will suffer is a UNIVERSAL PRINCIPAL.

The fact that almost all people follow and that very few are independent thinkers is a UNIVERSAL PRINCIPAL.

The fact that all leaders and schools of thought will eventually be found wanting is a UNIVERSAL PRINCIPAL.

The fact that people falsely assume that thinking about their beliefs is thinking is a UNIVERSAL PRINCIPAL.

The fact that people live in their status quo, that they don't see beyond that status quo and that they don't know that they aren't seeing that which is beyond is a UNIVERSAL PRINCIPAL.

This is just a start.  We should not expect to see UNIVERSAL PRINCIPALS from within a status quo.

I intend no personal malice in this rant.  I am simply not happy with a world that raises us to be blind.


bnbdnb's picture

This is remarkable too. Watch me type....





VegasRage's picture

Yes, and lets not forget the $244 plus TRILLION in derivatives on the banks books.  Financial bets sitting on the table 20 times greater than all the money in the world markets. If even a fraction of these collapses, the next crash will be game over. Read the chart on page 24


Office of the Comptroller of Currency

OCC Quarterly Derivatives Report Q1/11

Godzilla is at our door, and all the politicians think they can get away with painting its toenails.


SheepDog-One's picture

RIGHT MDB! Got to get people SPENDIN again!

Might I suggest buying more 'Forever Lazy's'? Cant ever have enough of those 'consumer neccessities', hell look at the thing, dont even have to take it off to take a dump! 


Mr Lennon Hendrix's picture

Forever lazy....this would be a good slogan for a campaign on going braless.

ucsbcanuck's picture

After my recent trip to Florida, I'd have to say that would be a mixed blessing. The older ladies would lap it up, the younger ones not so much.

walküre's picture

I just gots me 5 of dem sets for da hole family!

Mr Lennon Hendrix's picture

So in terms of monetary policy, what do you recommend?  If we create more credit, we assume more future debt issuance.  If we increase the debt, the affect of real growth (GDP) will be decimated by the increase in taxes to fund the debt, and interest on the debt.

MillionDollarBonus_'s picture

Taxes do not have to be increased, as we can simply borrow the money. Interest rates will not rise for two reasons:

1. China depends heavily on our consumption of their exports and so they must conitnue to finance American spending

2. Our Federal Reserve is able to buy our government's debt and bid up treasury prices, which is also known as quantitative easing

Dr. Richard Head's picture

1. China and Japan are actively dumping the dollar (alongwith Russia) and creating trade agreements that do NOT depend on the dollar.

2. Fed buying government debt and treasuries is a game of pass the buck.  Interest rates cannot remain low forever.  At this point in the game a small incremental increase of interst rates will push debt/GDP ratios up like the EU.

Taxes will be increased on the people through higher prices of goods because of cost-push inflation created by QE.  Borrowing money from oneself is impossible to keep going forever.  I can't see how taking money from the left hand and passing it to the right hand will make me whole while the debt still remains and grows.

jeff montanye's picture

are we certain that mdb is not teasing us?

Non Passaran's picture

I am short, actually, so not everyone minds current developments!

tao400's picture

But why should people go out and buy crap that they don't need. Why do you have to have an apple 4s when you already have a 4. It is ridiculous. And guess what, no amount of money sloushing around is going to get people to do that. That mentality is over. The whole system needs to reset. The bankers will try to inflate and do what you say but people won't buy in to it. The next result, a brutal crash and high inflation. I am so close to pulling the trigger on silver I can't stand it. The only thing stopping me is that it looks like it will go down more. It's incredible. The PMs will be one of the few things standing at the end of the day in a couple years.

High Plains Drifter's picture

the world is crying out for leadership?  

blueridgeviews's picture

milliondollarbonus, Germany had people just like you just after WWI.Does Weimar ring a bell?


You can't dig your way out of a hole.


Europe is collapsing under it's own socialist weight. Europe and America have kicked the can as far as it will go.  Time to pay the piper.

walküre's picture

You're mistaken. Weimar wasn't a failure in itself. The fact that Germany had to bleed dry to pay the bankers who made the war loans killed Germany financially. The only way out for Germany, then so called Weimar Republic was to print and pay the bankers with diluted shit.

We could all live well and prosper if we took the bankers out behind the wood shed.

asteroids's picture

I have also warned REPEATEDLY, but also ingored, that there is far too much credit and debt, and an asteroid full of CDS' flying above our head. Bold leadership would outlaw CDS's. Drastically bring down credit, and have debt haircuts. Only then will the world enter a new era of peace, harmony and progrogress.

asteroids's picture

I have also warned REPEATEDLY, but also ingored, that there is far too much credit and debt, and an asteroid full of CDS' flying above our head. Bold leadership would outlaw CDS's. Drastically bring down credit, and have debt haircuts. Only then will the world enter a new era of peace, harmony and progrogress.

Oh regional Indian's picture

But seriously, why call it Money Supply? It's Debt supply.

In fact, between those two words, both the Eu's and the world's problems lie. Supply side greed and debt-money.

Try this experiment. Call your cash Debt Notes. And your Credit Card a Debt card. I suggest that a sharp slowdown in spending might ensue.

Hwo will you pay for that?

a. With my debt card

b. With Debt notes

Changes everything. Relaguaging Debt into Credit and Money have left us blinded to their real meaning.



pods's picture

Gets even worse if you look at a "paycheck" and realize that you are being paid other people's debt for your time and energy.


NoClueSneaker's picture

Maximilien François Marie Isidore de  Ro...

...n Paul.


... con usual lo tec hw.

knight99's picture

I think within the next 3 months there is going to be 1 week where the Euro will lose 800 pips + and it still wont be the bottom. I will look to cover around the 1.10 area

knight99's picture

No way for Ben to print unless Oil drops to 60-70 dollar range. Bens got one more year in office then Ron Paul kicks his ass out and hopefully charges him for treason.

Wolf-Avatar's picture

Unfortunately, knight99 , that will only be the situation in a sensible world and, as we are all aware on ZH, we live in frickin' Bizzarro world.

What will, more likely, happen is that the current POTUS will be re-elected and keep Helicopter Ben in because of the 'marvellous' job that he's been doing so far.

vegas's picture

Of course lending is collapsing. Who the hell is going to expand a business [or start one up] in an environment where the entire social order is collapsing thanks to the idiots in charge? Europe is a basket case of regulations that hassle business to death. Fuck you technocrats.

Teamtc321's picture


You are exactly spot on, small business that drive employment are either slowing, shrinking or outright closing on purpose. They are tired of fighting the up hill battle of fraud, corruption, regulation, law suit's, margin squeeze, cost of business etc. 

All this fine central planning has created a fine environment to do business in, "Hope, Hope and Change" you will go broke in.  

pods's picture

I could not imagine trying to run a business over there.  

It is tough enough to merely ship something INTO the EU.  

Now where did I write down that harmonized code..........................


Snakeeyes's picture
After all the monetary stimulus they have thrown at the banks and Italy, it is like that "And all I got was this t-shirt." Italy Bond Sale Malaise And The 7% Solution

lolmao500's picture

Help defeat NDAA :!/petition/veto-national-defense-authorization-act-2012-several-provisions-bill-pose-threat-civil-liberties/GLfhBn6D

donsluck's picture

Try this link: 1540 - National Defense Authorization Act for Fiscal Year 2012

It's more direct.

Edit - oops, wrong issue...

cherry picker's picture

What is to be expected when politician's whose only real expertise is selling themselves for votes are controlling something they know nothing about?

They refuse to balance their books, which most households are capable of.

They hire "expert" consultants who are really manipulating for their own gain as people forget that Goldman helped Greece hide their true financial status when they entered the Euro.

This whole system needs an overhaul as we cannot continue to allow ourselves to be led by incompetence and self interests.

alien-IQ's picture

there's nothing wrong with banks, both European and American, that can't be easily fixed with a few gallons of gas and a match.

Wolf-Avatar's picture

alien-IQ , with the price of gas what it is at the moment ...


Maybe a couple boxes of matches and some old newspapers.    :-D

ucsbcanuck's picture

Yeah let's not go around wasting some fine gasoline now. 

achmachat's picture

any real assets look cheaper and cheaper when you read these!

Irish66's picture

Petroplus told this story 2 days ago

SheepDog-One's picture

Dang! ANOTHER centrally planned central banker money printing FAIL? 

Well....guess theyll just have to try that yet AGAIN!