Broad financial system liquidity growth has continued to decelerate over the first half
of 2013 despite the Fed's large QE program as the banking system's loan book growth
has slowed leaving banks less interested in bidding for deposits. Ditto the growth of
the system's key liquidity asset -- Treasuries. The activity mirrors a sluggish domestic
economy and modest progress in the need for trade financing. Mortgage run off and
defaults top new originations despite a decent pick up in housing and broader building
activity. It is worth noting that part of the slowdown evident in credit and the broad
measures of liquidity is a reflection of a loss of inflation momentum since last autumn
on lower capacity utilization not just in the US but globally as well. The world has yet
to shake the deflationary bias introduced by the "Great Recession."
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