New Study Shows Money Has Tightened

Ah, no kidding. This study reports what EPJ readers were aware of in real time. Here's WSJ with the details:

In an unusual collaboration, the chief economists from Goldman Sachs and Deutsche Bank teamed up with economists at Princeton University, Columbia University and New York University to produce an index measuring financial conditions. It is an important exercise because financial conditions help to drive economic growth, inflation and asset prices. When money is loose and easy, the economy tends to grow faster in the short-run, though inflation and asset price booms can build. Tight money, on the other hand, is like a lack of oxygen which can strangle growth....

What they found is that after improving markedly in the first half of 2009 — thanks in large part to the Fed’s money pumping exercises — financial conditions tightened again in the second half of the year, unusually so for the early stages of a recovery. “The fact that financial conditions are still impaired, at least in some parts of the system, is consistent with the idea that the recovery is going to be a slow one,” Mr. Hatzius said. “It is consistent with a fairly slow, U-shaped recovery.”

Actually, the Fed printed money (M2) at a near 15% annualized rate from September 2008 to end-February 2009, then stopped.

Since this report, like Bernanke, is confusing low interest rates with money supply tightening, they are not getting the slow down in money supply, itself, rather they are getting the slightly delayed impact a couple of months later when it hits in terms of less actual financing.

This is where the economy stands now. The stock market will be the next to break.