Americans well react!

Publié le par Jean-Pierre Chevallier

Americans well react!

Americans well react: on December 31, they decreased their savings compared to the previous week of $ 4.8 billion to spend more.

decreased, the increase in M2-M1 (year-on-year)… decreased below 7%.
Chart 1:
(Click here to enlarge the graph)

Since late August, the trend is downward, which means that Americans have confidence in the future: they do not hesitate to spend their income, which boosts the GDP growth.

The reversal of the trend began when the Fed has finally started to decline its target on September 18, 2007.

Chart 2:
(Click here to enlarge the graph)

The increase in M2 has fallen sharply: it was at 5.7% and it tends to 5%. Money is sound.
Chart 3:
(Click here to enlarge the graph)

As real GDP growth is inversely proportional to the variation of the free money supply in M2-M1 (decreasing), low growth is coming in the near future, but it remains positive, and it tends to recover spontaneously because the Fed target is neutral at 4.25%.

Chart 4:
(Click here to enlarge the graph)

Under these conditions, a decrease of the Fed target is not justified.

By lowering their rates below the neutrality (4.25%), the FOMC members could cause too much growth a few months later, which will require in the future that they rise too high the Fed funds, thus perpetuating unnecessarily cycles like in the past .

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