According to my least favorite indicator, GDP, the US economy continued to shrink in the second quarter making this recession the longest on record. However, the moderate decline of just 1% is bringing hope to trend followers that the worst may be over.
Little do they realize that it was a Bernanke tight money policy in the Summer of 2008 that caused this recession in the first place, and that Bernanke in recent months has tightened money supply, again, to Summer of 2008 levels.
Over the last nine months money supply growth has been as high as 15.0% plus on a three month annualized basis. Thus, because of the 15% growth, the current strengthening is not a surprise. However, over recent months Bernanke has virtually stopped money printing. The latest numbers, out yesterday, show the 3 month M2 nsa money supply measure growing on an annualized basis of just 1.3%. There's no way this meager money growth can support the current Fed manipulated structute of the economy. Once the early monewy thrust works its way through the economy, down we go, again.
Bottom line, trend followers, who don't understand business cycle theory and the Fed's dominant role in causing the ups and downs in the economy, are getting sucked into an up move that will eventually crash real hard into a mean double-dip recession.
I think your latest money supply change figure is overstated. From Bloomberg I've got 7/20 m2 nsa of 8320.7 and 4/20 m2 nsa of 8402.0. That's an annualized change of -3.9% not +1.3%.
ReplyDelete@ Peter
ReplyDeleteI use the Fed convention of calling the last 13 weeks "three months". One week doesn't make a difference and it's just easier to calculate when the Fed layss the data out that way on their H.6. My numbers for last week reflected the 4-20 data which showed the drop.
I wish I had the money to fork over for a subscription to Shadow Stats so I could see what the real % change was. On the site, John Williams only has a graph of Q1 GDP % change for every year since 1982 for free. His calculations always seem to better reflect reality.
ReplyDeleteExcellent - thanks for clarifying that 3 months is 12 weeks. I've got one other question - given that the Fed controls the monetary base (reserves plus currency) which is the raw material for the banking system to "create" the money supply, is your point that if the Fed wanted to support money supply growth they should push more reserves into the banking system?
ReplyDelete