Errors of the Fed and irrationality of the markets

Publié le par Jean-Pierre Chevallier

M2-M1 further increased by $49,7 billion in the week finishing on August 27, exactly like the previous week, which never occurred in the History of the United States!
After the attacks of September 11, M2-M1 increased by $50 billion, but all is become again normal during following weeks: the variations of M2-M1 were weak because the Fed well reacted by immediately lowering its rate to 50 basic points. Alan Greenspan and the political and economic leaders did everything so that Americans continue to consume to maintain the economic activity.

The errors of Ben Bernanke and his boys have more devastators effects that the attacks of Bin Laden!
They do not make the good decisions and their declarations do not reassure anybody.
In 3 weeks, by 6 to August 27, M2-M1 increased by $125 billion, which means that Americans do not rely on the future: they save more.
The subprime was a priori not a very serious crisis, but it starts the visible part of the self-sustained economic slowdown which causes a recession which could have been easily avoided like pointed it Martin Feldstein.
The markets do not anticipate this basic movement.
After the irrational exuberance of the markets during the Nineties, Alan Greenspan, which had well identified the problems, imposed the good solutions so that the growth sets out again. His action was very effective.
Ben Bernanke did not take any measurement to cure the difficulties which currently arise.
M2-M1 increases
much more than during previous months,
Figure 1:


M2-M1 increases compared to the previous year by 9.5%, which is much more than during previous weeks,

Figure 2:


As the increase in the free money supply is inversely proportional to the growth of the GDP, a recession currently occurs, since August,
Figure 3:

The increase in M2-M1 of $49,7 billion during 2 consecutive weeks never occurred in the History of the United States!

Figure 4:


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