Ever since the financial crisis, economic growth has been relatively sluggish and inflation has been lower than normal. And this has been the case despite extraordinary amounts of monetary stimulus courtesy of the Federal Reserve.
Many have argued that the missing ingredient to the recovery has been “animal spirits,” or the human emotion that drives us to take risk, invest, and spend.
But in recent weeks, we’ve seen some evidence that suggests all of that is changing.
Business Insider recently asked Charles Schwab’s Liz Ann Sonders for what she considered to be the most important chart in the world.
Sonders replied with a chart of total U.S. bank loans and leases.
“Over the past 15 weeks there has been a sharp acceleration in bank lending, which is now growing at an 8.6% annual rate, and could suggest animal spirits are reviving,” she said.
This is an encouraging sign because American consumers and businesses spent much of the recovery cutting back on debt.
“But it does mean we need to keep an eye on the velocity of money to gauge the risk of an inflation scare,” warned Sonders.
Indeed, if financial transactions pick up, the disinflation trend we’ve been experiencing could quickly turn around.