Back to normal

Publié le par Jean-Pierre Chevallier

Back to normal


The latest figures released by the Fed on January 3 confirm the previous trend: the increase in savings of Americans (M2-M1)… decreased during the first 4 weeks of December.

The increase in M2-M1 tends to 7.5%, meaning that Americans have more confidence in the future: they continue to consume, which maintains GDP growth.
Chart 1:
2008.01.04.US.1.M2M1.gif
 

(Click here to see graph)

The cut of the Fed target from September 18, 2007 has reassured consumers.
The FOMC members would have had to take this decision in early 2007 ...
Chart 2:
2008.01.04.US.2.M2M1.FF.gif
(Click here to see graph)

The trend towards improvement in the economic situation is even more pronounced with M2: the increase in M2 was less than 6% last December 24 (one year to another).
Chart 3:
2008.01.04.US.3.M2.gif
(Click here to see graph)

As GDP growth is inversely proportional to the variation in the free money supply, it was low in the fourth quarter (but 2.3% year over year, i.e. a zero-growth quarter previous assumption here).
Chart 4:
2008.01.04.US.4.FRM.gif
(Click here to see graph)

The subprime crisis has little negative impact in the United States because the money is sound. It is the first pillar of economic success for Reaganomics.

The maintenance of the Fed target at a too high level for too long has caused the slowdown in GDP growth, desired by the FOMC members (to break down inflation, which remains too high due to energy prices).

The analysis of changes in monetary aggregates is the best indicator of future growth.

Real GDP growth will be low in the first quarter 2008, but it will return in standards at the beginning of the second quarter because positive effects are observable 6 months after the cut of the Fed target.

This will be the beginning of a long period of growth and prosperity in the United States on sound fundamentals.

The FOMC members should not lower their base rates by 4.25% because it would be too inflationary.

See my posts of previous weeks (in French): http://www.jpchevallier.com/article-15031954.html

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