Hyper volatility

Publié le par Jean-Pierre Chevallier


M2-M1 dropped by $90 billion since August 27 to September 3, "du jamais vu" (ever seen) in the History of the United States!
Figure 1: http://s3.archive-host.com/membres/up/2107676425/20070914US1M2M1M1.gif

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What means that Americans saved $125 billion since the 6 to August 27 (because they feared that sub-prime’s crisis have direct effects on their situation), again spent this money while consuming. Thus for example, the sales of Wal-Mart were high in August.
For the moment, the crisis of the sub-prime is limited to a lack of liquidity in the inter-bank sector.

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The maintenance of the Fed target on a too high level considerably slows down the growth which remains weak: 1.7% year-on-year, i.e. 0.17% in the third quarter compared to the precedent in rate annualized, according to the American usual presentation, assumption selected here,
Figure 2: http://s3.archive-host.com/membres/up/2107676425/20070914US2FRM.gif

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The growth weakens because Americans increase their saving: 7.9% year-on-year, because they fear that their situation is degraded in the future.
Figure 3: http://s3.archive-host.com/membres/up/2107676425/20070914US3M2M1.gif

The growth weakens because it is inversely proportional to the increase in the free money supply.

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The growth is near zero but gains of productivity remain high. The companies adapt by decreasing their loads of personnel: the net creations of jobs were thus negative in August.
The growth is perhaps still positive because exports are strong thanks to the expenditure of the emergent countries (with Boeing, Caterpillar, etc).
In addition, public expenditure very strong increase for few months, which stimulates the growth, but this keynesian revival is dangerous!

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The variations of the monetary aggregates from one week to another were weak: lower than $10 billion, but they are strong increasingly since the beginning 2007, since Ben Bernanke is chairman of the Fed. He does not inspire confidence with the Americans.
This hyper volatility presents many disadvantages. It means that there are important imbalances which destabilize the markets.
The American authorities should reassure the markets and solve the difficulties which arise instead of creating some.

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