Friday, October 21, 2011

Atlanta Fed Chairman Admits Keynesian Forecasters Don't Have a Clue

The Atlanta Fed's President Dennis Lockhart explained in a speech delivered Tuesday:
We at the Atlanta Fed regularly monitor the data series that directly enter into the GDP calculation, along with important other series, including employment… In the months leading up to July, the downside surprises in the data dominated. In August and September, upside and downside surprises were roughly equal. But in October, the surprises have generally been to the upside.Bottom line, because these econometric forecasters don't have any theory to explain changes in the economy, they don't see the changes coming. They are always too bullish when the economy is just starting a downward move and too negative when it is beginning to turn higher.
I don't want to make it sound too easy, because government regulations, changes in the demand to hold cash balances, also play a role, along with other factors, but if you keep an eye on money supply, it's going to give you a pretty good indication as to the way the economy is headed.

In the early part of the year, the Fed was keeping a lid on money growth, which resulted in the minor dip that the econometricians were slow to pick up on. Now, with the Fed aggressively printing, the econometricians are behind the curve in recognizing the upturn.

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